Curtis Cap Company manufactures and sells ball caps with a special logo on the b
ID: 2484586 • Letter: C
Question
Curtis Cap Company manufactures and sells ball caps with a special logo on the back of the cap that it has copyrighted. Curtis sells its caps through many retail outlets and it has a set price of $21.00. Recently, the National Football League (NFL) has approached Curtis with an offer to purchase 10,000 caps for $170,000 for this year’s NFL Superbowl . The NFL caps require the use of NFL’s own logo and will cause Curtis to purchase a special machine and set-up costing $10,000 with no apparent future use or value (the machine imprints the 2013 championship winning team logo). Curtis cost structure for the production of its caps is as follows:
Direct material: $7.00
Direct labor:....$2.00
Manufacturing Overhead: $8.00
In addition to the costs above, the special logo application will cost $2.00 per cap. Due to the fact that the an existing contract negotiation with Capital Caps Inc (a fierce competitor of Curtis Cap) has forced the NFL to cancel that deal, the NFL has requested expedited delivery costing another $1.00 per cap. While most of the Manufacturing Overhead is fixed, Variable Overhead is estimated at $3.00 per cap. It is expected that this order can be fulfilled within the existing capacity of Curtis Cap Company and will not affect existing sales.
Required: What will be the affect on income if Curtis accepts this order? Based on your answer of income, should Curtis accept the order?
Explanation / Answer
Manufacturing of special order
Amount in $
a.Direct materrial 7
b,.Direct Labour 2
c.Variable manufacturing Overhead 3
d.Special Logo 2
e.Expedited Delivery 1
f .Total variable cost (a+b+c+d+e ) 15
g. No of cap got offered 10,000 Units
hTotal variable cost for manufacturing cap (fXg) 150,000
i.fixed manufacturing cost
i.e. cost and setup machine 10,000
j.Total cost of manufacturing cost (h+i) 160,000
k.sell price 170,000
l.Profit (k-j ) 10,000
m.fixed manufucturing overhead not considered as it is set off with current manufcturing
Yes curtis should accept the offer.
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