Question
How do I respond to this question: Eating Excellence (Pty) LTD is manufactures two different stainless steel kitchen apparatus, namely Mixer and Fixer. The products
How do I respond to this question:
Eating Excellence (Pty) LTD is manufactures two different stainless steel kitchen apparatus, namely Mixer and Fixer. The products are sold to retailers who resells the products to their own customers. The management accountant is busy preparing the monthly budget for the next financial year.
The company's metal-moulding machine's capacity is limited to 480 hours per month. All the other machines have unused capacity and the other resources are readily available. The Sales Manager has indicated that she can potentially sell 2000 units of product Mixer (requiring 400 machine hours to produce) and 3000 units of product Fixer (requiring 150 machine hours to produce) per month to a variety of customers.
The budget information per unit for each product is as follows:
Mixer | Fixer | |
Selling price | 100 | 80 |
Raw material | 20 | 20 |
Variable cost | 30 | 30 |
Fixed cost | 15 | 8 |
Depreciation | 10 | 15 |
Absorption profit per unit | 25 | 7 |
Required:
1. Determine the number of monthly sales units per product (sales mix) that should be budgeted for the coming financial year in order to maximise the profit. Then calculate the budgeted total monthly contribution that will be derived from this optimum mix.
2. During the year, the company is approached by a potential new customer who requires 200 units of Fixer (this potential sale is additional to the originally estimated potential sales of 3000 units of Fixer). The customer is prepared to pay R70 per unit for a one-time order. Assume for this part of the question that if a once-off order is accepted, the company will not be able to decrease the regular sales unit of Fixer below 3000 per month without losing all the regular business relating to the Fixer. Determine the minimum price per unit that Eating Excellence (Pty) Ltd can accept from the potential new customer?
3. Should the additional order referred to in 2 above be accepted on a purely quantitative basis? Explain your answer.
4. Assuming that the offer of R70 per unit is accepted, indicate why choosing to sell to the once-off customer might have a negative effect on existing customer's perception of the company's loyalty to them.
Please help me with the above questions. am truly battling.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started