One-time orders. (CMA, adapted) Edmonton Precision Tool Ltd. (EPTL) has a maximum practical capacity of 4,000 laser machine-hours and 1,000 imaging machine-hours. The direct costs per hour to operate each machine are $15 and $20, respectively. A prospective customer has offered EPTL $35,000 to build a custom tool. The expected cost of direct materials for this one-time contract is $5,000. The contract will require 200 laser machine-hours and 10 image machine-hours to complete. Indirect overhead is allocated based on the following regression (see Chapter 10):

REQUIRED 1. Assume that EPTL will just reach its operating capacity if it decides to accept this offer.
Calculate the change in operating income if this offer is accepted.
2. Assume now that both machines are operating at 90% capacity and all current units are sold at $1,500 per unit. Each unit requires direct materials costing $250, 4 laser machinehours, and | image machine-hour to produce. Indirect variable overhead costs are $200 per unit and the indirect fixed overhead costs are $225 per unit based on full capacity.
A second prospective customer offers to purchase 240 units at $1,350 per unit. If EPTL accepts this offer it must deliver all 240 units by year-end. Calculate the opportunity cost if EPTL accepts this offer.
3. Assume the same data as in requirement 2. EPTL, however, can lease machinery to accept the second customer's offer at a cost of $76,000. Calculate the change in operating income if the offer was accepted and the equipment was leased.
LO1

Transcribed Image Text:

y 200,000+ 50x +10z where y is the total overhead costs, x is laser machine-hours, and z is image machine-hours.