The California Instruments Corporation, a producer of electronic equipment, make

Question

The California Instruments Corporation, a producer of electronic equipment, makes pocket calculators in a plant that is run autonomously.The California Instruments Corporation, a producer of electronic equipment, makes pocket calculators in a plant that is run autonomously. The plant has a capacity output of 200,000 calculators per year, and the plant's manager regards 75 percent of capacity as the normal or standard output. The projected total variable costs for the normal or standard level of output are $900,000, while the total overhead or fixed costs are estimated to be 120 percents of total variable costs. The plant manager wants to apply a 20 percent markup on cost.

d) If during the year the plant manager receives an order for an additional 20,000 of its calculators from a school system to be delivered in four months for the price of $10, should the manager accept the order?

Explanation / Answer

plant has a capacity output of 200,000 75 percent of capacity as the normal or standard output = 0.75 x 200,000 = 150000 variable cost = $900,000 fixed costs = 1.2 x variable cost = $1080000 cost of manufacture of each unit = ($1080000+$900,000)/200000 = $ 9.9 20 % mark up on cost = 1.2 * $9.9 = $11.88 D) 200,000--> $900,000 as variable cost. extra 20000 units were ordered 220000--->variable cost =$990000 total revenue made by selling 220000 units at $10 = 9.9 x 200000+10 x 20000= $2180000 total cost in making 220000=fixed cost + variable cost = $ 2070000 total profit in selling these units = $110000 he is in profit so he should sell those calculators ---------------------------------------------------------++++______________

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