Wolverine Valve and Fitting Company, located in southern Michigan, manufactures a variety of industrial valves and pipe fittings. Currently, the company is operating at about 70 percent capacity. Management has been approached by Glasgow Industries Ltd. of Scotland with an offer to buy 200,000 units of a pressure valve. Glasgow Industries manufactures a valve that is almost identical to Wolverine's pressure valve; however, a fire in Glasgow Industries' valve plant has shut down its manufacturing operations. Glasgow needs the 200,000 valves over the next four months to meet commitments to its regular customers. Glasgow is prepared to pay $24.60 each for the valves. Wolverine's total product cost for the pressure valve is $26.00, calculated as follows: Direct material Direct labor Manufacturing overhead $ 6.50 8.00 11.50 Total product cost $26.00 Manufacturing overhead is applied to production at the rate of $23 per direct-labor hour. This overhead rate is made up of the following components. $ 7.00 12.00 Variable manufacturing overhead Fixed manufacturing overhead (traceable) Fixed manufacturing overhead (allocated) Applied manufacturing overhead rate 4.00 $23.00 Additional costs incurred in connection with sales of the pressure valve include sales commissions of 5 percent and freight expense of $1.40 per unit. However, the company does not pay sales commissions on special orders that come directly to management. In determining selling prices, Wolverine adds a 30 percent markup to total product cost. This provides a $33.80 suggested selling price for the pressure valve. The Marketing Department, however, has set the current selling price at $32.30 in order to maintain market share. Production management believes that it can handle the Glasgow Industries order without disrupting its scheduled production. The order would, however, require additional fixed factory overhead of $15,000 per month in the form of supervision and clerical costs. If management accepts the order, 50,000 pressure valves will be manufactured and shipped to Glasgow Industries each month for the next four months. Glasgow's management has agreed to pay the shipping charges for the valves. Problem 15-41 Part 1 Required: 1. Determine how many direct-labor hours would be required each month to fill the Glasgow Industries order. Direct-labor hours 2. Prepare an analysis showing the impact of accepting the Glasgow Industries order. (Round your "Per unit" answers to 2 decimal places. Enter all values as positive values.) Per Unit Totals for 200,000 Units Incremental revenue Incremental costs: Variable costs: Direct material Direct labor Variable overhead Total variable costs Fixed overhead Supervisory and clerical costs Total incremental costs Total incremental profit 3. Calculate the minimum unit price that Wolverine Valve and Fitting Company's management could accept for the Glasgow Industries order without reducing net income. (Round your answer to 2 decimal places.) Minimum unit price 4. Identify the factors, other than price, that Wolverine's management should consider before accepting the Glasgow Industries order. (Select all that apply.) Management composition of Glasgow Industries. The company's relevant range of activity and whether or not the special order will cause volume to exceed this range Other possible production orders that could come in and require the capacity allocated to the Glasgow job. Sales volume of Glasgow Industries. The effect on machinery or the scheduled maintenance of equipment The effect of the special order on Wolverine's sales at regular prices. The possibility of future sales to Glasgow Industries and the effects of participating in the international marketplace. OOON
