Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Huang Automotive is presently operating at 75% of capacity. The company recently received an offer from a Korean truck manufacturer to purchase 29,000 units of
Huang Automotive is presently operating at 75% of capacity. The company recently received an offer from a Korean truck manufacturer to purchase 29,000 units of a power steering system component for $190 per unit. Peter Wu, vice-president of sales, noted that since the truck manufacturer approached Huang, there will be no sales commission, normally 2% of sales. Although he recognizes that there will be an additional $2.00 shipping cost for each component, he thinks that accepting the order will get the company's "foot in the door" of an expanding international market. T.J. Chan, vice-president of engineering, feels that any new market should first show its profitability and that the $190 per unit offer is below the unit cost of the component. She also points out that there will be additional setup costs of $270,000 and that Huang will have to lease some special equipment for $280,000. Huang's sales, production, and cost information for the last two years for the component are as follows: 204,000 units 235,000 units Sales $51,000,000 $58,750,000 Direct material costs 17,952,000 20,680,000 Direct labor costs 4,896,000 5,640,000 Overhead costs 22,802,000 24,367,500 Selling and administrative costs 9,550,000 9,937,500 Total costs $55,200,000 $60,625,000 Total costs per unit $270.59 $257.98 Required 1. What would the expected profit be on the special order (use a negative sign for a loss)
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