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[ LO 1 1 - 2 ] 1 1 - 3 5 Special Order; Strategy; International Williams Company, located in southern Wisconsin, manufactures a variety
LO Special Order; Strategy; International Williams 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.
Glasgow Industries Ltd of Scotland has approached management with an offer to buy
units of a pressure valve. Glasgow Industries manufactures a valve that is almost identical to
Williams's pressure valve; however, a fire in Glasgow Industries's valve plant has shut down its
manufacturing operations. Glasgow needs the valves over the next four months to meet
commitments to its regular customers; the company is prepared to pay $ each for the valves.
Williams's product cost for the pressure valve, based on current attainable standards, follows:
Decision Making
Additional costs incurred in connection with sales of the pressure valve are 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. Freight expense will be paid by Glasgow.
In determining selling prices, Williams adds a percent markup to product cost. This provides a
$ suggested selling price for the pressure valve, rounded to the nearest whole dollar. The marketing
department, however, has set the current selling price at $ to maintain market share.
Production management believes that it can handle the Glasgow Industries order without disrupt
ing 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, Williams will manufacture and ship pressure valves to
Glasgow Industries each month for the next four months. Shipments will be made in weekly consign
ments, FOB shipping point.
Required
Determine how many additional direct labor hours DLHs will be required each month to fill the
Glasgow order. Round your answer to the nearest whole number.
Prepare an analysis showing the impact on operating income of accepting the Glasgow order.
Calculate the minimum unit price that Williams's management could accept for the Glasgow order with
out reducing operating income. Round answer to decimal places.
To prove your answer to requirement use the Goal Seek function in Excel to calculate the minimum
unit selling price to decimal places for the special sales order.
Suppose now that if the Glasgow order were accepted, sales of units per month to regular custom
ers would be precluded at a selling price of $ per unit All other facts are as given in this problem.
What is the revised breakeven selling price per unit for the Glasgow special sales order? Round answer
to decimal places.
Identify the strategic factors that Williams should consider before accepting the Glasgow order.
Identify the factors related to international business that Williams should consider before accepting the
Glasgow order.
CMA Adapted
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