Zip company makes and sells a single product called Kit Operating at full capacity will give 30000 units per year Costs associated at this level of production are as follows Direct material $450000 Direct labor $240000 Variable overhead $90000 Fixed overhead $270000 Variable selling $120000 Fixed selling $180000 Total $1350000 The Kits are normally sold for a price of $50 per unit Fixed overhead of $270000 is for a range of 25000 to 30000 units per year QUESTIONS Assume that due to slow economy, the company can sell only 25000 units through normal channels next year A large retain chain Kalmart has offered to purchase 5000 units if Zip would give 16 discount on the selling price There would be no sales commission on this order and so the variable selling expenses for this order will be lower by 75 However, Zip would have to get a special machine costing $10,000 to do this order Should Zip accept this order Why or why not Now ignore question 1 and refer to the original data Assume that next year sales will be only 25000 units The US army would like to make a onetime purchase of 5000 units The army would pay a fixed fee of $1 80 per unit and in addition would reimburse the company for all variable and fixed costs associated with this order But there will be no variable selling expenses on this order This also would need the special machine costing $10,000 Should Zip accept this order Why or why not Assume the same situation in question 2, except that the company will be able to sell 30000 units through normal channel next year Should Zip accept this Army order Why or why not Now refer to the original data and assume next year sale will be 25000 units Another retailer Warket has approached this company to place a special order for 10000 units at a price of $40 00 per unit There will be no variable selling expense on this order This also would need the special machine costing $10,000 Should Zip accept this order Why or why not Now assume the company will sell only 25000 units next year The Marketing manager proposes that the extra capacity can be used to produce and sell 20,000 units of another product Det This product can be sold for $18 00 per unit The variable production cost and variable selling cost per unit will be $12 00 and $2 00 respectively What should the company do Should it accept the offer from Kalmart, or the Army, or Warket, or do Det

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Jul 17, 2024

Zip company makes and sells a single product called Kit. Operating at full capacity will give 30000 units per year. Costs associated at this level

Zip company makes and sells a single product called Kit. Operating at full capacity will give 30000 units per year. Costs associated at this level of production are as follows:

Direct material $450000

Direct labor $240000

Variable overhead $90000

Fixed overhead $270000

Variable selling $120000

Fixed selling $180000

Total $1350000

The Kits are normally sold for a price of $50 per unit. Fixed overhead of $270000 is for a range of 25000 to 30000 units per year.

QUESTIONS

Assume that due to slow economy, the company can sell only 25000 units through normal channels next year. A large retain chain Kalmart has offered to purchase 5000 units if Zip would give 16% discount on the selling price. There would be no sales commission on this order and so the variable selling expenses for this order will be lower by 75%. However, Zip would have to get a special machine costing $10,000 to do this order.

Should Zip accept this order? Why or why not?

Now ignore question 1 and refer to the original data. Assume that next year sales will be only 25000 units. The US army would like to make a

onetime purchase of 5000 units. The army would pay a fixed fee of $1.80 per unit and in addition would reimburse the company for all variable and fixed costs associated with this order. But there will be no variable selling expenses on this order. This also would need the special machine costing $10,000.

Should Zip accept this order? Why or why not?

Assume the same situation in question 2, except that the company will be able to sell 30000 units through normal channel next year.

Should Zip accept this Army order? Why or why not?

Now refer to the original data and assume next year sale will be 25000 units. Another retailer Warket has approached this company to place a special order for 10000 units at a price of $40.00 per unit. There will be no variable selling expense on this order. This also would need the special machine costing $10,000.

Should Zip accept this order? Why or why not?

Now assume the company will sell only 25000 units next year. The Marketing manager proposes that the extra capacity can be used to produce and sell 20,000 units of another product Det. This product can be sold for $18.00 per unit. The variable production cost and variable selling cost per unit will be $12.00 and $2.00 respectively.

What should the company do? Should it accept the offer from Kalmart, or the Army, or Warket, or do Det?