Question 3: (Special order decision) Tower Appliances also produces an innovative rechargeable, mini-portable air conditioner, the Icy. The Icy is designed to be ultra-portable, so that people can use them during backyard barbeques or when going on a picnic. Because the Icy is unique in the market, Tower Appliances sell them at a relatively high price, at $72 per unit. Mode Delay Holden recently received an order from Calla Whitegoods--a company that makes and sells low-price "home brand" whitegoods and appliances, mainly to Asian markets (including China, Malaysia and he Vietnam). Calla Whitegoods wants to purchase 1,000 units of the Icy, at $50 per unit, and to be delivered in two months' time. Calla Whitegoods also requests a unique colour, sunset red, which would require Tower Appliances to buy the special dye at a cost of $250 for these 1,000 units. Holden has prepared the following analysis for this special order request, and is excited to find that despite the much lower price offered by Calla Whitegoods, this special order is highly profitable and will generate a net profit of $29,000. He wants to accept this special order. an a future update, Snipping Tool will be moving to Price 50 Hew home. Try improved features and snip as usua Direct materials lith Snip & Sketch (or try the shortcut Direct labour 10indows logo key + Shift +S). Manufacturing overhead 6 Total per unit cost 21 y Snip & Sketch Profit per unit Profit for 1,000 units 29,000 5 29 Additional information: Holden has recently piloted activity-based costing to cost a unit of Icy. The manufacturing overhead cost of $6 includes $2 facility-level costs what are allocated based on the number of units produced, $3 batch-level set up costs due exclusively to Calla Whitegoods' unique colour requirement, and $1 machine-related unit-level costs (e.g., electricity, machine motor oil). The manufacturing overhead cost does not include the depreciation expense ($1,000 p.a.) of the specialised equipment previously purchased used to produce the Icy. Tower Appliances currently produces 600 units of Icy per month, which represents 60% of its maximum capacity for producing the Icy. Tower Appliances can sell every unit of Icy it produces. Required a) Holden has asked you if you agree with his decision to accept this special order. Identify three errors in Holden's calculations. Explain your answer. b) Prepare a correct financial analysis of Calla Whitegoods' special order request. Question 3: (Special order decision) Tower Appliances also produces an innovative rechargeable, mini-portable air conditioner, the Icy. The Icy is designed to be ultra-portable, so that people can use them during backyard barbeques or when going on a picnic. Because the Icy is unique in the market, Tower Appliances sell them at a relatively high price, at $72 per unit. Mode Delay Holden recently received an order from Calla Whitegoods--a company that makes and sells low-price "home brand" whitegoods and appliances, mainly to Asian markets (including China, Malaysia and he Vietnam). Calla Whitegoods wants to purchase 1,000 units of the Icy, at $50 per unit, and to be delivered in two months' time. Calla Whitegoods also requests a unique colour, sunset red, which would require Tower Appliances to buy the special dye at a cost of $250 for these 1,000 units. Holden has prepared the following analysis for this special order request, and is excited to find that despite the much lower price offered by Calla Whitegoods, this special order is highly profitable and will generate a net profit of $29,000. He wants to accept this special order. an a future update, Snipping Tool will be moving to Price 50 Hew home. Try improved features and snip as usua Direct materials lith Snip & Sketch (or try the shortcut Direct labour 10indows logo key + Shift +S). Manufacturing overhead 6 Total per unit cost 21 y Snip & Sketch Profit per unit Profit for 1,000 units 29,000 5 29 Additional information: Holden has recently piloted activity-based costing to cost a unit of Icy. The manufacturing overhead cost of $6 includes $2 facility-level costs what are allocated based on the number of units produced, $3 batch-level set up costs due exclusively to Calla Whitegoods' unique colour requirement, and $1 machine-related unit-level costs (e.g., electricity, machine motor oil). The manufacturing overhead cost does not include the depreciation expense ($1,000 p.a.) of the specialised equipment previously purchased used to produce the Icy. Tower Appliances currently produces 600 units of Icy per month, which represents 60% of its maximum capacity for producing the Icy. Tower Appliances can sell every unit of Icy it produces. Required a) Holden has asked you if you agree with his decision to accept this special order. Identify three errors in Holden's calculations. Explain your answer. b) Prepare a correct financial analysis of Calla Whitegoods' special order request
