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Part Six in March of year 3, Big Als receives a special order from an...

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Accounting

Part Six in March of year 3, Big Als receives a special order from an athletic arena to purchase 5,000 meat pizzas and 3,000 veggie pizzas for a special charity event.

Required: A. Assuming that Big Als has sufficient excess capacity, what is the minimum price that Big Als would be willing to accept for this special order? Assuming that Big Als does not have sufficient excess capacity, what minimum price would be acceptable? What qualitative factors should Big Als consider before agreeing to accept the special order? B. Big Als is nearing its manufacturing capacity and needs to consider ways to increase throughput. What options does Big Als have to increase capacity? What bottlenecks does it face? What recommendations would you make?

Part 7 Big Als currently leases its equipment from Pizza Products for $2,500 per month. Two years of the five-year lease term remain. Big Als can terminate the lease at any time by paying a penalty of $10,000. Big Als is considering purchasing equipment to replace the leased equipment. Big Als must purchase 10 units of each piece of equipment. Big Als can purchase equipment at the following prices: Equipment Price (per unit) Dough ball press $5,450 Assembly table 2,100 Cardboard cutter 4,100 Plastic sealer 2,695 Label installer 1,000

Required: A. Using NPV analysis, compare the present value of the lease payments with the cost of buying the equipment. Assuming a discount rate of 10 percent (before tax), which option is preferable? B. Big Als has the option of purchasing equipment from another supplier at a cost of $190,000. The supplier promises that the new equipment will reduce operating costs by $1,000 per month over the life of the equipment. Assuming a 10 percent discount rate (before tax), which option is preferable? C. Calculate the after-tax NPV for each option discussed previously. If purchased, all equipment will be depreciated over five years, using straight-line depreciation, and will have no salvage value. Big Als tax rate is 30 percent. Is your decision still the same? D. What factors other than cost savings should Big Als consider in these decision problems?

Big Al's Pizza Inc.
Chapter Two
A. Direct Material Costs per Pizza
Gold Level Silver Level Bronze Level
Dough Shells $0.12
Sauce Package $0.20
Cheese Package $0.08
Meat Package $0.30
Assembly Package $0.04
$0.74 $0.00 $0.00
B. Direct Labor Costs per Pizza
Information Needed:
Percentage of Fringe Benefits 50%
Rate for Direct Labor $7.50 per Hour
Meat Pizza Rate Fringe Total
Rates $7.50 50% $ 11.25
Time to Produce 0 0
% of Hour 0 0 0
Cost per Pizza $ - $ - $ -
C. Manufacturing Overhead Costs per Pizza
Per Month Per Year
Rent on Production Facility $1,000 $12,000
Utilities $1,475 $17,700
Other Overhead:
Indirect Material $2,500 $30,000
Maintenance Costs $1,500 $18,000
Quality Inspection Costs $2,000 $24,000
Equipment (Lease Cost) $2,500 $30,000
Indirect Labor
Supervisor $3,000 $36,000
Other Indirect Labor $2,000 $24,000
Total Overhead Costs $15,975 $191,700 Overhead Costs per Pizza
Projected Volume of Pizzas 0 0 #DIV/0!
Total Capacity 0 #DIV/0!
Excess Capacity 0 0
D. Total Manufacturing Costs per Pizza at each Cost Level
Gold Level Silver Level Bronze Level
Direct Material $0.74 $0.00 $0.00
Direct Labor $0.00 $0.00 $0.00
Manufacturing Overhead #DIV/0! #DIV/0! #DIV/0! Assuming projected production volume.
#DIV/0! #DIV/0! #DIV/0!
E.
Organizing the Production Facilities Efficiently
*
*
F. Set the Sales Price
Gold Level Silver Level Bronze Level
Original #DIV/0! #DIV/0! #DIV/0!
10% #DIV/0! #DIV/0! #DIV/0!
20% #DIV/0! #DIV/0! #DIV/0!
30% #DIV/0! #DIV/0! #DIV/0!
40% #DIV/0! #DIV/0! #DIV/0!
50% #DIV/0! #DIV/0! #DIV/0!
60% #DIV/0! #DIV/0! #DIV/0!
70% #DIV/0! #DIV/0! #DIV/0!
80% #DIV/0! #DIV/0! #DIV/0!
90% #DIV/0! #DIV/0! #DIV/0!
100% #DIV/0! #DIV/0! #DIV/0!
The sales price must also cover non-manufacturing costs like the monthly selling and administrative
costs.
G.
Selling and Administrative Costs (Monthly)
Administrative Salaries $4,000
Salaries of Sales Staff $5,000
Product Promotion and Advertising $2,000
Rental of Office Space for Admin. & Sales Staff $2,000
Utilities, Insurance, Etc. $500
Lease of Office Furniture and Equipment $800
Total Selling and Administrative Costs $14,300 Total Period Costs
H. (5% Increase) Direct Material Costs per Pizza
Gold Level Silver Level Bronze Level
Dough Shells $0.12 $0.00 $0.00
Sauce Package $0.20 $0.00 $0.00
Cheese Package $0.08 $0.00 $0.00
Meat Package $0.30 $0.00 $0.00
Assembly Package $0.04 $0.00 $0.00
$0.74 $0.00 $0.00
5% Increase $0.78 $0.00 $0.00
Labor $0.00 $0.00 $0.00
Overhead #DIV/0! #DIV/0! #DIV/0!
Total
#DIV/0!
#DIV/0! #DIV/0!
Sales Price (30%) #DIV/0! #DIV/0! #DIV/0!
Factors to consider:
I. Ways to reduce cost

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