Question
UB Corp is a manufacturer of USB flash drives. The regular market price of the company's 16GB model is $32 per unit. UB Corp has
UB Corp is a manufacturer of USB flash drives. The regular market price of the company's 16GB model is $32 per unit. UB Corp has been approached by a major retail store with a proposed special order for 10,000 units of 16GB flash drives at a price of $23 each. UB Corp's 'per unit' production costs are as follows:
Variable costs: |
|
Direct materials | $12.15 |
Direct labour | 6.25 |
Variable overhead | 2.00 |
Fixed overhead per unit | 4.50 |
Total Manufacturing Cost Per Unit | $24.90 |
1. Assume that UB Corp has excess capacity, and fixed costs would not be affected by the special order. Should the company accept the special order? If 'yes', by what dollar amount would operating income increase? Show your math and financial reasons clearly.
2.
UB Corp's competitor, SIM Inc, also produces flash drives in two sizes: 4GB and 15GB. Market demand is currently unlimited for both sizes. SIM Inc's production facility operates 200 hours per month. SIM cannot find additional qualified assembly production staff to work more shifts. Data relating to SIM's sales and production for the month of December is as follows:
| 4GB | 15GB |
|
Variable Manufacturing Cost per unit | $12 | $19 |
|
Fixed Manufacturing Costs | - | - | $6,000 per month |
Production maximum | 4 units per hour | 3 units per hour |
|
Sales Price per unit | $22 | $34 |
|
What is the constraint in this scenario? Determine the best product mix, to maximize profit, for SIM Inc's two USB sizes. Fixed costs are not impacted by product mix choice. Your answer will state the number of flash drives to produce.
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