Please Explain your calculations and

Provide a recommendation

Appendix Four (Multi channel marketing) Objective: To maximize output from packaging machines, the volume of packaged foods has too high. In order to sell them, all possible channels will be explored. This includes accepting high volume, one-time orders (or 'special orders). Due to the high volume, the selling price will be lower than that of the regular selling price. The goal is to evaluate at what price can the special orders be accepted. Scenario: The consulting group has developed the following cost structure for packaged foods. This is based on a production capacity of 30,000 units. The unit selling price is set at $50. The fixed manufacturing expense is constant in the range of 25,000 to 50,000 units. The maximum production capacity is 30,000 units Per Unit 15 8 Item Direct materials Direct labour Variable Manufacturing Overhead Fixed manufacturing overhead Variable Selling Expense Fixed Selling Expense 3 Total 450,000 240,000 90,000 270,000 120,000 180,000 9 | 4 6 Due to market conditions, WMM can sell 20,000 units through regular channels. They plan to offer a quote to a large manufacturing facility to sell 5,000 units of the packaged food item, at a lower price. This would be a one-time order and can be classified as a special order. Since this would be sold directly to the client, there would be no sales commission and variable selling expense would be reduced by 75%. However, WMM has to buy freezer boxes so that the frozen items can be transported to the manufacturing facility. The freezer boxes would cost $ 10,000 and would be used solely for this special order. After that they would have no residual value and would be discarded. Methodology: The group would calculate the offer price. The offer price will cover all variable expenses and include a 25% markup on variable expenses. Issue #4: Multi channel marketing of packaged food items The consulting group wanted to develop calculations using the relevant costing model of 'Special Orders'. They felt that, in order to maximize production capacity 'special orders', should be accepted. These orders would represent one-time sales opportunities of the products in a very high volume. Due to the high volume, client would have to be offered a price which is lower than the list price. Relevant data is presented in Appendix 4