Township Soaps is a producer of handmade bar and liquid soaps in Canada. The company has recently begun exporting to several international clients. A boutique hotel chain headquartered in Hamburg, Germany has approached Township Soaps and asked for a quote for a large, recurring order of bottles of liquid soap for its hotels. The client requested customized packaging to include the hotel's logo which would cost require Township to buy a new machine. The incoterm agreed upon is CIP. The quote requested is for 7,000 units. The company does not need to acquire any new machinery or overhead to fulfill this order as it has enough capacity in its existing facilities. The cost to produce the soap domestically is as follows: Direct Materials per unit: $3.25 Direct Labour per unit: $1.25 Variable Manufacturing Overhead per unit: $0.15 Fixed Manufacturing Overhead per unit: $0.25 Sales Commissions per unit (domestic only): $0.10 The following costs have been estimated by Township Soaps to export the product to Hamburg. The company considers its activity base to be the number of units sold. Total freight Cost by Boat (less-than-container load, includes insurance): $1,400 Total domestic transportation from factory to the Port of Montreal (by Truck): $350 Total domestic transportation from Port of Hamburg to client location in Hamburg (by truck): $200 Customs duties to clear customs in Germany: $15 per unit Total detention fee Canada: $560 Total strapping and Marking Fees: $210 Translation of Packaging from English to German: $300 Time spent redesigning the labels to be printed in German: $200 Additional cost of printing the labels on the bottles in German: $0.10 per unit Time and cost for an existing salaried employee to prepare documentation for export: $200 New Machine Required for custom packaging for the hotel: $18,000 Wire transfer fee for the order: $50 Time for an existing salaried employee to oversee business development and customer service: $1,350 Hedging on Foreign Exchange Risk: $0.05 per unit The company is aware that some of these costs might not be relevant to this export situation and need your help to perform some calculations. Based on the information provided, answer the following questions: 1. Calculate the domestic cost per unit using absorption costing 2. Calculate the unit variable cost for one bottle of soap to be exported to Hamburg. Remember to only include the relevant costs. Round to the nearest hundredth (two decimal places). HINT: When calculating any variable costs that are a percentage % of the value of goods (such as insurance and hedging), add up all the other variable costs first, THEN calculate the percentage based on that total. 3. Calculate the total fixed cost for this order (include only relevant costs) 4. If the company charges $8 per unit when exporting the product, what is the minimum number of units that they need to sell to break even? Round up to the nearest whole number. 5. Using variable costing (i.e. the answer you calculated in question two), if the company wants a 60% markup on the exported product, what should the selling price be? Round to two decimal places. 6. What is the company's net income on this order if they set the selling price to $10 per unit
