Question
Lucky Ltd produces scooter for kids that it sells for $37 each. At capacity, the company can produce 54 000 scooters a year. The costs
Lucky Ltd produces scooter for kids that it sells for $37 each. At capacity, the company can produce 54 000 scooters a year. The costs of producing and selling 54 000 scooters are as follows:
Cost per scooter | Total costs | |
Direct materials | $14 | $756 000 |
Direct labour | 4 | 216 000 |
Variable production overhead | 2 | 108 000 |
Fixed production overhead | 5 | 270 000 |
Variable selling expenses | 2 | 108 000 |
Fixed selling expenses | 3 | 162 000 |
Total costs | $30 | $1 620 000 |
Required(show your workings):
Suppose that currently Lucky is producing and selling 44 000 scooters; at this level its fixed costs do not change from the above table. Cochiti Ltd wants to place a one-time special order for 10 000 scooters at $21 each. Lucky will incur no variable selling costs for this special order. Should Lucky accept this one-time special order? Show your calculations. | 5 marks | |
Suppose that Lucky is currently producing and selling 54 000 scooters. Cochiti's order has to be 10,000 units entirely. If Lucky accepts Cochiti's order, Lucky will have to sell 10 000 fewer scooters to its regular customers. a.On financial considerations alone, should Lucky accept this one-time special order? Show your calculations. b. On financial considerations alone, at what price would Lucky be indifferent between accepting the special order and continuing to sell to its regular customers at $37 per unit? c. What other factors should Lucky consider in deciding whether to accept the one-time special order? | 7 marks 8 marks 5 marks |
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