Question
The Sudbury Police Department asked Super Vlos inc. to make 100 specially modified mountain bikes for him at a cost of $ 279 each. These
The Sudbury Police Department asked Super Vlos inc. to make 100 specially modified mountain bikes for him at a cost of $ 279 each. These bikes would be used to patrol some of the city's busier cycle paths. The company can easily modify its city bike model to meet Sudbury Police Service specifications. The selling price of this model (city bike) is $ 349. Its unit manufacturing cost is $ 282, as shown in the following table:
Raw material | 186 $ |
Direct labour | 45 |
General manufacturing cost (GMC) | 51 |
Unit manufacturing cost | 282 |
The variable portion of GMC is $ 6 per unit. The order would have no effect on the firm's total fixed GMCs. The modifications to the bikes consist of welded brackets to hold radios, batons and other accessories. They would result in additional variable costs of $ 17. In addition, the company is expected to donate $ 1,200 to a graphic arts studio to design and cut stencils that would be used to spray paint the Sudbury Police Service logo and other identifying signs on the pictures. bikes.
This special order should not have any effect on the company's regular sales. According to the production manager, it is possible to run it without interrupting the production activities already planned. Therefore, the company has sufficient production capacity to undertake this order.
Work to do :
1) Super Vlos inc. should she accept or decline this special order? (For this question, present the table of relevant data and your quantitative analysis only)
2) Now let's say that Super Vlos inc. is operating at full capacity and sells its city bikes for $ 349 each. What is the opportunity cost of the special order?
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