A B F 1 11-22 Grant Industries, an manufacturer of electronics parts, has recently received an 2 invitation to bid on a special order for 20,000 units of one of it most popular products. 3 Grant currently manufactures 40,000 units of this product in its Loveland, Ohio, plant. 4 The plant is operating at 50% capacity. There will be no marketing costs on the special order. 5 The sales manager of Grant wants to set the bid at $9 per unit because she is sure that 6 Grant will get the business at that price. Others on the executive committee of the firm 7 object, saying that grant would lose money on the special order at that price. 8 The company sells the part through normal distribution channels at $20 per unit. 9 10 Units 40,000 60,000 11 Manufacturing costs: 12 Direct materials $80,000 $120,000 13 Direct labor $120,000 $180,000 14 Factory overhead $240,000 $300,000 15 Total manufacturing costs: $440,000 $600,000 16 17 Unit cost $11.00 $10.00 18 19 1) Compute the variable cost per unit and total fixed costs for the manufacturing costs. 20 21 22 Direct materials 23 Direct labor 22 24 25 Factory overhead Var. Cost/unit Total Fixed Cost 26 2) Why does the unit cost decline from $11 to $10 when production level rises from 40,000 to 60,000 units? 27 28 29 > explain in your own words 30 31 3) Why in special order decisions do we ignore the absorption costing unit cost? 32 33 explain in your own words 34 35 36 4) What is the current manufacturing capacity in units? Is there enough capacity to produce the special order? 37 38 39 40 41 Current capacity < < yes or no, enough capacity 42 5) Assume the $9 per unit bid is accepted, how will short-term net income change? 43 44 45 Selling price 46 Variable costs 17 Fixed coctr per unit total (20,000u)