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Keller Technology produces specialised machinery customised to their clients' need. The following information is available regarding Keller's operations: Barings Systems had ordered a custom machine
Keller Technology produces specialised machinery customised to their clients' need. The following information is available regarding Keller's operations: Barings Systems had ordered a custom machine five months ago and paid a 5% deposit on the $275,000 machine. The cost of producing the machine for Barings are as follows: - The allocation rates for the manufacturing oveithead and fixed selling and administrative costs are: Just as Keller completed producing the machine, Barings went into receivership. As Barings was unable to pay for the machine, the deposit paid to Kelle rwas forfeited. Keller is now considering the options available to them with regards to the machine that Barings had ordered. The production manager has identified three options for Keller. REQUIRED: Option A: Pegasus Engineering is willing lo buy the Barings' machine if it can be re- a. Determine the dollar contribution each of the three alternatives and choose worked to Pegasus' specifications. The re-worked machine will be sold to Pegasus which option is best (financially) for Keller. Show all workings. machine to Pegasus' requirements are as follows: b. If Pegasus makes Keller a counteroffer, what is the lowest price Keller should accept for the reworked machinery from Pegasus? Explain your answer. Option B: It is possible to convert the Barings machine into a standard machine that Keller can normally sell for $199,375. However, as this is a conversion of a custom machine, a 4% discount will be offered to attract a buyer. In order to complete the End of Question Three conversion, Keller will need to incur the following costs: Option C: Keller will sell the machine in its current completed state for $185,000
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