Section B: Decision Making Techniques (Total Marks: 33 marks) Question 6 (15 marks) Good Cats Food Company Limited is a manufacturer of natural and healthy canned cat foods in two factories A and B. The manufacturing costs per can of cat food product X is as follows: $ 200 g of Direct Material A 12 300 g of Direct Material B 15 4 Direct Labour Hours 16 Variable Overheads Allocated Fixed Overheads 13 Total 60 4 The factory A is working at full production capacity, producing 20,000 cans of product X per year. The allocated fixed overheads are calculated based on full production capacity. The selling price of cat food product X is $100 per can. Last week, a highly regarded customer has asked Good Cats Food Company to produce 4,000 cans of cat food product Y for a new favour. The manufacturing process of cat food product "Y" is almost the same as that for cat food product X. It will utilize the same amount of resources for variable overheads and fixed overheads per can. It will utilize half amount of resources for direct labour per can. The manufacturing costs per can of cat food product Y is estimated as follows: 100 g of Direct Material A 6 100 g of Direct Material B 5 2 Direct Labour Hours 8 Variable Overheads 4 Allocated Fixed Overheads 13 Total 36 Notes: 4000 kg of Material A at the cost of $240,000 are in stock as a result of previous over-buying. The current replacement cost becomes $300,000. Material A is useful for other productions. Material B is out of stock and can be purchased at a lump sum order of 6000 kg at the cost of $300,000. Unused Material B will be useless for other productions and will cost one off removal expense of $1,000. Notes: (6) Excess labour hours can be diverted for the production of product Z in factory B. Selling price of product Z is $120 per can. It takes 8 labour hours for the production of each can. The cost analysis per can will be Direct Material Cost and Variable Overheads at $20 and $30 respectively (Direct Material and Variable Overheads for the production in Factory B are completely different from that of Factory A). Factory B is not working at full capacity and the production of product Z will not affect any existing productions. Required: What is the minimum price for the special order? Please explains