Question
Relic is a company that makes unique car parts. The two car parts they make are wagers and grippers. Their machines capacity limits are 1,000
Relic is a company that makes unique car parts. The two car parts they make are wagers and
grippers. Their machines capacity limits are 1,000 machine hours. The required financial
information provided by Relic are:
Wager Gripper
Selling price per unit $250 $330
Variable costs per unit
Direct materials $30 $35
Other direct costs $10 $12
Manufacturing overhead costs* $30 $44
Variable manufacturing overhead costs are applied at a rate of $40 per machine hour.
A possible client, Balboa Inc., is asking Relic to produce 250 units of a unique, special tool for
$250 per unit. The following are the production costs and time to produce the 250 units:
Direct materials $8,000
Other direct costs $3,000
Machine hours 225
Required:
A. Assume Relic has sufficient excess capacity to produce Balboa's order. Calculate
the potential total contribution if the special order is accepted.
B. Assume Relic is operating at full capacity. Calculate the contribution margin per
unit and per machine hour. Should Relic produce the units for Balboa's special
order instead of wager or gripper.
C. What if Relic is operating at 95% of full capacity. What would be the opportunity
cost would if Balboa's special order is accepted.
D. If Relic is actually operating at 95% of full capacity but they have opportunity to
rent additional machines for $35,000 to produce Balboa's special order. Calculate
its effect on Relic's profit If they accept the special order.
E. What advice would you provide to Relic's stakeholders whether they have
capacity or not about taking the special order?
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