A company, currently operating at full capacity, manufactures and sells saucepans at £2 each. Current volume...

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Accounting

     A company,currently operating at full capacity, manufactures and sellssaucepans at £2 each. Current volume is 100,000 pans per annum withthe following cost structure.

    Operating Statementfor year
                                                                                         £
    Sales (100,000 at£2)                                               200,000
     less MarginalCost
    Labour                             80,000
       Material                        50,000                            130,000
       =Contribution                                                         70,000
      FixedCosts                                                              30,000
       =Netprofit                                                            £40,000
      An opportunity has arisen to supply an additional 30,000 pans perannum at £1.18 each.
     Acceptance of this order would incur extra fixed costs of £8000 perannum for the hire for additional machinery and the payment of anovertime premium of 20% for the extra direct Labour required.Should this order by accepted?
      What other factors need to be considered?

Answer & Explanation Solved by verified expert

4.2 Ratings (558 Votes)

net loss will be 16400 the decision will not be accepted the factors will be labor cost and raw materials cost and here the fixed cost also increasing so this should consider because this is increasing due to increasing See Answer

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