Alderon Enterprises is evaluating a special order it has received for a ceramic fixture to be used in aircraft engines Alderon has recently been operating at less than full capacity, so the firms management will accept the order if the price offered exceeds the costs that will be incurred in producing it You have been asked for advice on how to determine the cost of two raw materials that would be required to produce the order a The special order will require 900 gallons of endor, a highly perishable material that is purchased as needed Alderon currently has 1,300 gallons of endor on hand, since the material is used in virtually all of the companys products The last time endor was purchased, Alderon paid $5 00 per gallon However, the average price paid for the endor in stock was only $4 75 The market price for endor is quite volatile, with the current price at $5 50 If the special order is accepted, Alderon will have to place a new order next week to replace the 900 gallons of endor used By then the price is expected to reach $5 75 per gallon The special order would also require 1,500 kilograms of tatooine, a material not normally required in any of Alderons regular products The company does happen to have 2,000 kilograms of tatooine on hand, since it formerly manufactured a ceramic product that used the material Alderon recently received an offer of $14,000 from Solo Industries for its entire supply of tatooine However, Solo Industries is not interested in buying any quantity less than Alderons entire 2,000 kilogram stock Alderons management is unenthusiastic about Solos offer, since Alderon paid $18,000 for the tatooine Moreover, if the tatooine were purchased at todays market price, it would cost $13 per kilogram Due to the volatility of the tatooine, Alderon will need to get rid of its entire supply one way or another If the material is not used in production or sold, Alderon will have to pay $1,500 for each 500 kilograms that is transported away and disposed of in a hazardous waste disposal site What is the real cost of tatooine to be used in the special order

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Sep 05, 2024

Alderon Enterprises is evaluating a special order it has received for a ceramic fixture to be used in aircraft engines. Alderon has recently been operating

Alderon Enterprises is evaluating a special order it has received for a ceramic fixture to be used in aircraft engines. Alderon has recently been operating at less than full capacity, so the firms management will accept the order if the price offered exceeds the costs that will be incurred in producing it. You have been asked for advice on how to determine the cost of two raw materials that would be required to produce the order.

The special order will require 900 gallons of endor, a highly perishable material that is purchased as needed. Alderon currently has 1,300 gallons of endor on hand, since the material is used in virtually all of the companys products. The last time endor was purchased, Alderon paid $5.00 per gallon. However, the average price paid for the endor in stock was only $4.75. The market price for endor is quite volatile, with the current price at $5.50. If the special order is accepted, Alderon will have to place a new order next week to replace the 900 gallons of endor used. By then the price is expected to reach $5.75 per gallon.

The special order would also require 1,500 kilograms of tatooine, a material not normally required in any of Alderons regular products. The company does happen to have 2,000 kilograms of tatooine on hand, since it formerly manufactured a ceramic product that used the material. Alderon recently received an offer of $14,000 from Solo Industries for its entire supply of tatooine. However, Solo Industries is not interested in buying any quantity less than Alderons entire 2,000-kilogram stock. Alderons management is unenthusiastic about Solos offer, since Alderon paid $18,000 for the tatooine. Moreover, if the tatooine were purchased at todays market price, it would cost $13 per kilogram. Due to the volatility of the tatooine, Alderon will need to get rid of its entire supply one way or another. If the material is not used in production or sold, Alderon will have to pay $1,500 for each 500 kilograms that is transported away and disposed of in a hazardous waste disposal site.

	What is the real cost of tatooine to be used in the special order?