Question 6(7 marks)

a) Viking Corporation's variable cost per unit produced is $100. Wholesaler Y offers to buy 2,000 additional units at $120 each. Wholesaler Z proposes to buy 1,500 additional units at $140 per unit. Viking has enough excess capacity to produce one but not both of the orders. Fixed costs are not affected by accepting either offer.

Required: Which offer should Viking accept and why? (4 marks)

b) Colin O'Shea has a carpentry shop that employs 4 carpenters. Colin received an order for 1,000 coffee tables. The coffee tables have a round tabletop and four decorative legs. An offer for $500 per table was received. Colin found an unfinished round tabletop that he could buy for $50 each.

The quantitative cost data to make the tabletop is shown below:

Direct materials

$10

Direct labor

35

Variable overhead

10

Fixed overhead

7

Required: What qualitative factors would Colin consider before he decides to buy the tabletop or make it? (Hint: No calculations required] (3 marks)