The manufacturing plant of Caricarn Ltd. specializes in crafting specialized pieces for carnival. With a monthly production capacity of 15,000 pieces, the company currently manufactures and sells 11,000 pieces per month. Typically priced at $200 per piece, the company's cost breakdown for the ongoing production level is outlined below: • Variable costs that vary with number of units produced Direct materials $440,000 Direct manufacturing labor 495,000 Variable costs (for setups, materials handling, quality control, etc.) that vary with number of batches, 220 batches * $500 per batch 110,000 • Fixed Costs Fixed manufacturing costs Fixed marketing costs Total costs 300,000 200,000 $1,545,000 = Caricarn has just received a special one-time-only order for 4,000 pieces at $150 per piece. Accepting the special order would not affect the company's regular business. Caricarn makes pieces for its existing customers in batch sizes of 50 pieces (220 batches 50 pieces per batch = 11,000 pieces). The special order requires Caricarn to make the pieces in 40 batches of 100 each.
The manufacturing plant of Caricarn Ltd. specializes in crafting specialized pieces for carnival. With a monthly production capacity of 15,000 pieces, the company currently manufactures and sells 11,000 pieces per month. Typically priced at $200 per piece, the company's cost breakdown for the ongoing production level is outlined below: • Variable costs that vary with number of units produced Direct materials $440,000 Direct manufacturing labor 495,000 Variable costs (for setups, materials handling, quality control, etc.) that vary with number of batches, 220 batches * $500 per batch 110,000 • Fixed Costs Fixed manufacturing costs Fixed marketing costs Total costs 300,000 200,000 $1,545,000 = Caricarn has just received a special one-time-only order for 4,000 pieces at $150 per piece. Accepting the special order would not affect the company's regular business. Caricarn makes pieces for its existing customers in batch sizes of 50 pieces (220 batches 50 pieces per batch = 11,000 pieces). The special order requires Caricarn to make the pieces in 40 batches of 100 each.
Chapter10: Short-term Decision Making
Section: Chapter Questions
Problem 6PA: Gent Designs requires three units of part A for every unit of Al that it produces. Currently, part A...
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Question
1. Should Caricarn accept this special order?
Explain and provide work where possible
2. As in 1, assume that monthly capacity is 15,000 pieces. Caricarn is concerned that if it accepts the special order, its existing customers will immediately demand a price discount of $20 in the month in which the special order is being filled. They would argue that Caricarn’s capacity costs are now being spread over more units and that existing customers should get the benefit of these lower costs.
Transcribed Image Text:The manufacturing plant of Caricarn Ltd. specializes in crafting specialized pieces for carnival.
With a monthly production capacity of 15,000 pieces, the company currently manufactures and
sells 11,000 pieces per month. Typically priced at $200 per piece, the company's cost
breakdown for the ongoing production level is outlined below:
• Variable costs that vary with number of units produced
Direct materials
$440,000
Direct manufacturing labor
495,000
Variable costs (for setups, materials handling, quality control, etc.)
that vary with number of batches, 220 batches * $500 per batch
110,000
• Fixed Costs
Fixed manufacturing costs
Fixed marketing costs
Total costs
300,000
200,000
$1,545,000
=
Caricarn has just received a special one-time-only order for 4,000 pieces at $150 per piece.
Accepting the special order would not affect the company's regular business. Caricarn makes
pieces for its existing customers in batch sizes of 50 pieces (220 batches 50 pieces per batch =
11,000 pieces). The special order requires Caricarn to make the pieces in 40 batches of 100
each.
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