Case 3 - Marvin Co. For this case, review your lecture notes on Relevant Costing Marvin Co. manufactures both an automatic and a manual household dehumidifier. Exhibit 1 contains information on the price and cost per unit for both automatic and manual dehumidifiers. Exhibit I also contains production time for both products and capacity constraints. Because of limited demand, for several years, production has been at 80% of estimated capacity. Capacity is constrained by the number of machine hours available. Management wants to make use of the company's current excess capacity. Management has several independent strategies to utilize this excess capacity. For each independent strategy, conduct an incremental analysis to determine the net impact the strategy will have on operating income. Unless noted, all cells should only contain cell references. Then, make a suggestion to management on which strategy they should implement. Required: STRATEGY 1 - Fulfill a special order Marvin Co. is in communications with a local construction company that develops subdivisions across the Midwest. The construction company is interested in a special order to purchase a combination of manual and automatic dehumidifiers for every home in the build project, but they would require a reduction on price for the bulk order. Marvin Co's production manager believes that the special order would require some additional fixed costs. The details of the special order are summarized in Exhibit 2. In the YELLOW boxes, determine the net change in operating income if Marvin Co accepts the special order. Exhibit 2: Special Order Request Automatic 300 2,000 Special Price Quantity Manual 125 5,000 C Sa L. C Additional Fixed Cost 85.000 Strategy 2: Foreign Market Automatic Manual Manual 125 5,000 280 120 2.5 CM Calculation Sales Price Less: Variable Cost Contribution Margin Divided by: Machine Hour Contribution Margin per machine hour Product Mix Quantity Incremental Analysis Net Change in Ol for Foreign Sales Case 3 - Marvin Co. For this case, review your lecture notes on Relevant Costing Marvin Co. manufactures both an automatic and a manual household dehumidifier. Exhibit 1 contains information on the price and cost per unit for both automatic and manual dehumidifiers. Exhibit I also contains production time for both products and capacity constraints. Because of limited demand, for several years, production has been at 80% of estimated capacity. Capacity is constrained by the number of machine hours available. Management wants to make use of the company's current excess capacity. Management has several independent strategies to utilize this excess capacity. For each independent strategy, conduct an incremental analysis to determine the net impact the strategy will have on operating income. Unless noted, all cells should only contain cell references. Then, make a suggestion to management on which strategy they should implement. Required: STRATEGY 1 - Fulfill a special order Marvin Co. is in communications with a local construction company that develops subdivisions across the Midwest. The construction company is interested in a special order to purchase a combination of manual and automatic dehumidifiers for every home in the build project, but they would require a reduction on price for the bulk order. Marvin Co's production manager believes that the special order would require some additional fixed costs. The details of the special order are summarized in Exhibit 2. In the YELLOW boxes, determine the net change in operating income if Marvin Co accepts the special order. Exhibit 2: Special Order Request Automatic 300 2,000 Special Price Quantity Manual 125 5,000 C Sa L. C Additional Fixed Cost 85.000 Strategy 2: Foreign Market Automatic Manual Manual 125 5,000 280 120 2.5 CM Calculation Sales Price Less: Variable Cost Contribution Margin Divided by: Machine Hour Contribution Margin per machine hour Product Mix Quantity Incremental Analysis Net Change in Ol for Foreign Sales
