Question
Vlados Company produces sound systems for cars and sells them to automotive manufacturers for $150 each. Full capacity is 21,000 systems per month, but it
Vlados Company produces sound systems for cars and sells them to automotive manufacturers for
$150 each. Full capacity is 21,000 systems per month, but it is currently producing 19,000 systems
per month for its regular customers. The company reports the following monthly results:
Per Unit, USD Total, USD
Revenue 150.00 2,850,000
Direct material 37.50 712,500
Direct manufacturing labor 18.00 342,000
Variable manufacturing overhead 22.00 418,000
Fixed manufacturing overhead 8.00 152,000
Variable marketing, distribution expenses 30.00 57,000
Fixed marketing, distribution expenses 10.00 190,000
Total costs 125.00 2,384,500
Operating Profit 24.50 465,500
Companys manager, Dansali Menyaev, receives a call regarding a one-time special order: Sary Arka
Automotive needs 2,000 systems and will pay $90 per system. Vlados will incur no selling costs for
the special order.
Required
A. Should Dansali accept this one-time special order? What would monthly operating income be
if Vlados did accept Sary Arkas order?
B. Sary Arkas manager calls again: They've run some new calculations, and they really need
2,500 systems at the same $90 price. It will have to be an all-or-nothing deal. Dansali thinks,
Now they're pushing it . . . Sary Arka's order will displace some of the volume I sell to my
regular customers who are a lot more profitable for us. Assuming that Vlados regular
customer relationships will not suffer due to a small one-time volume reduction, and based
on financial considerations alone, what should Dansali do? Provide specific calculations and
explain your reasoning.
C. Assuming that regular customer relationships will not suffer due to a small one-time volume
reduction, up to what volume is Vlados better off supplying to Sary Arka at a selling price of
$90?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started