Question Madam Chan has asked their supplier, ABC Co. to quote a price for her urgent-order. As the Management Accountant of ABC Co. you are required to advice the management on the additional profit that the company can make if Madam Chan's urgent-order is accepted and done. Note: All calculations to ascertain the incremental profits must be clearly shown in your report. Information to assess the financial viability of the urgent-order is given below. Labour Costs The urgent-order will need 1,000 hours of skilled labor to complete the order. However, these skilled labor hours are currently working at full force in producing and selling a current product that has a contribution to sales ratio (C/S ratio) of 40%, a selling price is $800 per unit, labor rate of $40 per hour and the labor cost is $200.00 per unit. The company has an option to either hire the 1,000 hours externally at a higher rate of $70.00 per hour or to take the 1,000 hours from current product. Plant \& Equipment costs A special cutting machine costing $300,000 will need to be hired for this urgent-order at a flat hiring rate of $400 per week. The special order will take 4 weeks to complete. Power and maintenance expenses currently incurred is $5,000 per week. This will increase by 10% per week if the urgent-order is accepted. Packing \& Delivery costs Bulk packing is required and the transport costs related to the urgent-order will increase. The following information is given as regards to delivery: Salary of existing driver: $1,000 /week, Fuel charges: \$1,00/order, Packer's over-time allowances: \$300/week, Bulk packing materials: \$4,000 and Servicing charges: \$400/order. General Production costs The general fixed production overhead is absorbed on a labor hour basis and the production overhead absorption rate is established at $30.00 per skilled labor hour. The general fixed production overhead costs actually incurred and paid for as a result of the urgent-order are expected to increase by $700 per week. Required: Show all detail calculations and provide detailed explanation for all relevant costs and irrelevant costs related to the urgent-order of ABC Co. You are required to ascertain the minimum price that the company can charge their client. How much incremental profit can ABC Co. make from this urgent order? State on what basis will the urgent-order to be accepted or rejected? Question Madam Chan has asked their supplier, ABC Co. to quote a price for her urgent-order. As the Management Accountant of ABC Co. you are required to advice the management on the additional profit that the company can make if Madam Chan's urgent-order is accepted and done. Note: All calculations to ascertain the incremental profits must be clearly shown in your report. Information to assess the financial viability of the urgent-order is given below. Labour Costs The urgent-order will need 1,000 hours of skilled labor to complete the order. However, these skilled labor hours are currently working at full force in producing and selling a current product that has a contribution to sales ratio (C/S ratio) of 40%, a selling price is $800 per unit, labor rate of $40 per hour and the labor cost is $200.00 per unit. The company has an option to either hire the 1,000 hours externally at a higher rate of $70.00 per hour or to take the 1,000 hours from current product. Plant \& Equipment costs A special cutting machine costing $300,000 will need to be hired for this urgent-order at a flat hiring rate of $400 per week. The special order will take 4 weeks to complete. Power and maintenance expenses currently incurred is $5,000 per week. This will increase by 10% per week if the urgent-order is accepted. Packing \& Delivery costs Bulk packing is required and the transport costs related to the urgent-order will increase. The following information is given as regards to delivery: Salary of existing driver: $1,000 /week, Fuel charges: \$1,00/order, Packer's over-time allowances: \$300/week, Bulk packing materials: \$4,000 and Servicing charges: \$400/order. General Production costs The general fixed production overhead is absorbed on a labor hour basis and the production overhead absorption rate is established at $30.00 per skilled labor hour. The general fixed production overhead costs actually incurred and paid for as a result of the urgent-order are expected to increase by $700 per week. Required: Show all detail calculations and provide detailed explanation for all relevant costs and irrelevant costs related to the urgent-order of ABC Co. You are required to ascertain the minimum price that the company can charge their client. How much incremental profit can ABC Co. make from this urgent order? State on what basis will the urgent-order to be accepted or rejected
