8.20 (LO 2) Special order pricing Guilford Packaging Company is a leading manufacturer of cardboard boxes and other product packaging solutions. One of the companys major product lines is custom-printed cake boxes that are sold to some of the countrys best-known bakeries at a price of $0.50 per box. To maintain its high-quality image, Guilford uses a thick premium coated paper for all of its cake boxes. Based on annual production of 1,000,000 boxes, Guilfords cost for producing a box is as follows:

Paper $0.15

Ink 0.03

Direct labor 0.08

Variable overhead 0.02

Fixed overhead 0.10

Total cost per box $0.38

Andrea Borden, a recent graduate of the Culinary Institute of America, is opening a new bakery in her hometown. She recently contacted Brad Lail, Guilfords top salesperson, about purchasing cake boxes for her new store. Brad described Guilfords boxes, emphasizing the high-quality paper and the unique printing process the company uses. Andrea is looking for ways to lower her operating costs, so after hearing Brad describe Guilfords boxes, she told him that all she needed was a simple, unprinted box. Andrea also told Brad that she needs 12,000 boxes and is willing to pay $0.22 per box.

Required

1. Based on Andreas offer of $0.22 per box for an unprinted box, should Guilford accept Andreas order? Guildford currently has excess production capacity and can easily accommodate Andreas order in the production schedule.
2. Since Andrea wants a simple box, Brad is exploring using a lighter-weight paper for her boxes. He has found a suitable paper that will cost $0.10 per box. If Guilford uses this lighter-weight paper for Andreas boxes, should the company accept Andreas order at a price of $0.22 per box? Guildford currently has excess production capacity and can easily accommodate Andreas order in the production schedule.
3. After visiting with Andrea, Brad received a fax from one of Londons top bakeries. The bakerys normal box supplier suffered some fire damage and is unable to ship the bakerys order of 12,000 boxes this month. The bakerys owner is asking if Guilford can fill a one-time rush order of 12,000 boxes printed with the bakerys logo. The bakery is willing to pay a 10% price premium to expedite the order. If Guilford accepts the order, it will incur $800 in export taxes and shipping. Should Guilford accept the London bakerys offer?
4. What qualitative issues should Guilford consider as it evaluates both Andreas order and the London bakerys order? Are these issues different for the two orders?

8.23 (LO 3) Outsourcing Benson ProSystems needs a new signal conditioner module for a large process control system it is designing. Current market conditions will support annual sales of 2,000 systems. Engineers estimate the following unit manufacturing costs for the module:

Direct materials $18

Direct labor 22

Variable manufacturing overhead 8

$48

Engineers estimate that 20 weeks of development work will be needed to develop, test, and verify the new design. Engineering resources (personnel and lab) to complete the development will cost $5,000 per week. If the engineers dont work on this project, they will be assigned to another.

Longan Devices has a module that is quite similar to the one Benson needs. Longan can modify the device to suit Benson in just four weeks and has offered to supply it to Benson at a price of $60 per unit.

Required

1. Should Benson go forward with its design of the new module, or should it accept Longans offer?
2. If Benson decided to outsource the new module to Longan, how much would the other projects Bensons engineers work on have to return (or save) to make outsourcing financially beneficial?