70.2K

Verified Solution

Link Copied!

Riel Company manufactures a variety of tool boxes. The firm is currently operating at $80\%$ of its full capacity of $6,400$ machinehours per month. Each unit requires $30$ minutes of machine time. Its sales manager has been looking for special orders to make productive use of the excess capacity. JCL Ltd$.,$ a potential customer, has offered to buy $10,000$ tool boxes at $$13\mathrm{.}90$ per box, provided that the entire quantity is delivered in two months. The current per$-$box cost data are as follows:

Direct materials

Direct labour $(\frac{1}{2}$ hour at $$\frac{12\mathrm{.}40}{?}$ hour$)$

Total manufacturing overhead

Total unit product cost

$$4\mathrm{.}10$

$6\mathrm{.}20$

$3\mathrm{.}60$

$$13\mathrm{.}90$

Both fixed and variable overhead are allocated using direct labour$-$hours as a base. Variable overhead is $$3\mathrm{.}10$ per direct labourhour. Without the order, Riel would have enough business to operate at $5,120$ direct labour$-$hours in each of the next two months. The regular selling price of the tool boxes is $$16\mathrm{.}90.$ A sales commission of $50$ cents per unit is paid to sales representatives on all regular sales.

No additional selling or administrative expenses are anticipated on account of accepting this special order and no commissions will be paid on this special order.

The production manager is concerned about the labour time that $10,000$ boxes would require. She cannot schedule overtime because Riel has a policy against it$.$ JCL will not accept fewer than $10,000$ tool boxes. Therefore, in order to fill the special order, it would be necessary for Riel Company to divert some of its regular sales to the special order.

Reauired:

Answer & Explanation Solved by verified expert

See Answer