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QUESTION 7

1. Bronson Ltd produces financial calculators. The production capacity is 35,000 calculators, and the company is currently operating at 80% capacity.

   Variable manufacturing costs are $12 per unit. Fixed manufacturing costs are $420,000. The calculators are normally sold to Computek Ltd at $28 each.

   Bronson has a special order offer from Office Equipment Ltd (a foreign wholesaler) to purchase an additional 6,000 calculators at $14 per unit. The delivery costs for this order would be $13,000.

   Should this offer be accepted? Why?

   	a.	Yes, because it would increase profits by $1,000.
   	b.	No, because the selling price to Office Equipment Ltd would be $14 less than the current selling price.
   	c.	No, because the price to Office Equipment Ltd is $6 lower than the full cost of each unit produced.
   	d.	No, because it would decrease profits by $1,000.
   	e.	Yes, because it would increase profits by $71,000.

1 points

QUESTION 8

1. A manufacturer of childrens clothing, Kids Wear Pty Ltd, has been approached to supply a special order for 10 000 designer shirts at a price of $12 per shirt. The variable costs of producing a shirt are $8 per shirt. Kids Wear Pty Ltd has sufficient spare capacity to manufacture the order without affecting its normal production and the order is within the relevant range so there will be no impact on fixed costs. Should Kids Wear Pty Ltd accept the order?

   	a.	Yes, as profits will be increased by $40 000
   	b.	There is insufficient information to tell whether Kids Wear Pty Ltd should accept the order or not
   	c.	No, as the price being offered of $12 per shirt is not sufficiently above the full cost of production of $8 per shirt
   	d.	Yes, as profits will be increased by $120 000
   	e.	Yes, as fixed costs will not change