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Required (ignore tax): a. Calculate the net income from accepting the special order. b. Assume that present sales will not be affected. Should the order
Required (ignore tax): a. Calculate the net income from accepting the special order. b. Assume that present sales will not be affected. Should the order be accepted from a financial point of view? Indicate your answer below. Apatu Company manufactures kites. The company recently received an inquiry from Lagimau Company. Lagimau Company wants to market a kite similar to Apatu Company's Dragon Kite; and has offered to purchase 12,000 units if the order can be completed in four months. The cost data for a Dragon Kite are as below: Direct material Direct labour (labour hour, 10 minutes) Total manufacturing overhead (machine hour, 30 minutes) Total cost per unit $20.00 $4.00 $25.00 $49.00 The normal selling price of the dragon kite is $55.00. However, Lagimau Company has offered Apatu Company only $40.00 because of the large quantity it is willing to purchase. Lagimau Company requires a modification of the design that will allow a $5.00 reduction in direct material costs. Apatu Company's production supervisor notes that the company will incur $8,000 in additional setup costs and will have to purchase a special device costing $5,000 to manufacture these units. The device will be discarded once the special order is completed. Total manufacturing overhead costs are applied to production at the rate of $50.00 per machine hour. This figure is based, in part, on budgeted yearly fixed overhead of $600,000 and planned production activity of 60,000 machine hours. Apatu Company will allocate $4,000 of its existing fixed administrative costs to the order as 'part of the cost of doing business'. c. Assume that Apatu Company's current production activity consumes 80 percent of planned machine hour. Calculate the current available machine hours for the special order. C d. Can Apatu Company accept the order and meet Lagimau Company's deadline? Indicate your answer below. e. What options might Apatu Company consider if management truly wanted to do business with Lagimau in hopes of building a long-term relationship with the firm? Indicate your answer below. Select all that apply
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