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Badger Valve and Fitting Company, located in southern Wisconsin, manufactures a variety of industrial valves and pipe fittings that are sold to customers in nearby
Badger Valve and Fitting Company, located in southern Wisconsin, manufactures a variety of industrial valves and pipe fittings that are sold to customers in nearby states. Currently, the company is operating at about percent capacity and is earning a satisfactory return on investment. Management has been approached by Glasgow Industries Ltd of Scotland with an offer to buy units of a pressure valve. Glasgow Industries manufactures a valve that is almost identical to Badgers pressure valve; however, a fire in Glasgow Industries valve plant has shut down its manufacturing operations. Glasgow needs the valves over the next four months to meet commitments to its regular customers. Glasgow is prepared to pay $ each for the valves. Badgers total product cost, based on current attainable standards, for the pressure valve is $ calculated as follows:
Direct material $
Direct labor
Manufacturing overhead
Total product cost $
Manufacturing overhead is applied to production at the rate of $ per standard directlabor hour. This overhead rate is made up of the following components.
Variable manufacturing overhead $
Fixed manufacturing overhead traceable
Fixed manufacturing overhead allocated
Applied manufacturing overhead rate $
Additional costs incurred in connection with sales of the pressure valve include sales commissions of percent and freight expense of $ per unit. However, the company does not pay sales commissions on special orders that come directly to management. In determining selling prices, Badger adds a percent markup to total product cost. This provides a $ suggested selling price for the pressure valve. The Marketing Department, however, has set the current selling price at $ in order to maintain market share. Production management believes that it can handle the Glasgow Industries order without disrupting its scheduled production. The order would, however, require additional fixed factory overhead of $ per month in the form of supervision and clerical costs. If management accepts the order, pressure valves will be manufactured and shipped to Glasgow Industries each month for the next four months. Glasgows management has agreed to pay the shipping charges for the valves.
Required:
Determine how many directlabor hours would be required each month to fill the Glasgow Industries order. Do not round intermediate calculations.
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