RELEVANT DECISION MAKING Barkworth Ltd produces a single product. The company has 10,000 machine hours available for June. A budget based on maximum potential sales for June is shown below: Sales revenue $2,100,000 Variable cost 850,500 Fixed cost 1,417,500 Loss $(168,000) The company sells its product at $112 per unit. Barkworth Ltd utilises 75% of its production capacity for the budgeted sales. There are no beginning and ending inventories of any kind. After the budget has been prepared a special order for 5,000 units at $84 per unit is received for the month. This order, if executed, will have no effect on the current budgeted sales. Required: Show ALL your workings. i. Based solely on financial grounds, should Barkworth Ltd accept this offer? ii. Based on the decision you made in requirement (i), calculate a new profit or loss for Barkworth Ltd for the month of May. iii. Discuss possible non-financial issues that might have an impact on Barkworth Ltd’s decision to accept this special order.
RELEVANT DECISION MAKING
Barkworth Ltd produces a single product. The company has 10,000 machine hours available
for June. A budget based on maximum potential sales for June is shown below:
Sales revenue $2,100,000
Variable cost 850,500
Fixed cost 1,417,500
Loss $(168,000)
The company sells its product at $112 per unit. Barkworth Ltd utilises 75% of its production
capacity for the budgeted sales. There are no beginning and ending inventories of any kind.
After the budget has been prepared a special order for 5,000 units at $84 per unit is received
for the month. This order, if executed, will have no effect on the current budgeted sales.
Required: Show ALL your workings.
i. Based solely on financial grounds, should Barkworth Ltd accept this offer?
ii. Based on the decision you made in requirement (i), calculate a new profit or loss for
Barkworth Ltd for the month of May.
iii. Discuss possible non-financial issues that might have an impact on Barkworth Ltd’s
decision to accept this special order.
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