The panther corporation is working at full prduction capacity producing 12000 un

Question

The panther corporation is working at full prduction capacity producing 12000 units of a unique product everlast. Manufacturing cost per unit for Everlast is

Direct materials 10

direct manufacturing labor 1

manufacturing overhead 17

total manufacturing cost 28

Manufacturing over head cost per unit is based on variable cost per unit of 8 and fixed costs of 108000 at full capacity of 12000 . Marketing cost per unit , all varaible , is 2 and selling price is 56. A customer , the apex company has asked panther to produce 3500 units of strong last, a modifiaction of everlast. Stronglast would requre the same manufacturing processes as everlast. Apex has offered to pay panter 51 for a unit of stronglast plus half of the marketing cost per unit

What is the opportunity cost to panther of producing the 3500 units of stronglast

Determine the formula for calculating the opporunity cost the calculate the opportunity cost of producing the 3500 units of stronglast

The cheasapeaks corporation has offered to produce 3500 units of everlast for panther so that panther may accept the apex offer . That is if panther accepts the chesapeaks offer, panther would manufacture 8500 units of everlast and 3500 units of strong last and purchase 3500 units of everlast from chesapeaks . Cheasapeaks would charge panther 48 per unit to manufacture everlast

On the basis of financial considerations alone , should panther accept the apex offer?

Panther is considering manufacturing 8500 units of everlast and 3500 units of stronglast and purchasing 3500 units of everlast from chesapeaks. Cheasapeake would charge panther 48 per unit to manufacture everlast . Begin by completing the following table for manufactured stronglast units and purchased everlast units .

Suppose panther had been working at less than full capacity producing 8500 units of everlast at the time the apex offer was made calculate the minimum price panther should accept for stronglast uner these conditions ( ignore the prevous 51 selling price )

Explanation / Answer

The panther corporation is working at full prduction capacity producing 12000 units of a unique product everlast, whose Manufacturing cost per unit is :

Direct materials

The customer M/s Apex company has asked panther to produce 3500 units of strong last, a modifiaction of everlast. Stronglast would requre the same manufacturing processes as everlast. Apex has offered to pay panter 51 + 1 (marketing cost) = $52 per unit

The Opportunity Cost per unit for Panther corporation for producing Stronglast is: $56 - $52= $ 4

The formula for calculating the opporunity cost the calculate the opportunity cost of producing the 3500 units of stronglast is:

OPPORTUNITY COST =( SELLING PRICE OF PRODUCING EVERLAST - PRICE RECEIVED FROM APEX TO PRODUCE STRONGLAST) X TOTAL NUMBER OF UNIT OF STRONGLAST

The total opportunity cost of producing the 3500 units of stronglast is: $ 4 * 3500 = $14000

The cheasapeaks corporation has offered to produce 3500 units of everlast for panther at price $48 so that panther may accept the apex offer. The Panther corporation will gain $ 4 on the opportunity cost on producing stronglast and accept cheasapeaks corporation offer.

=> Price of everlast ($56)- Price asked for producing everlast by cheasapeaks corporation ($48) = $8

- Opportunity cost on producing stronglast $4 = $ 4 (gain on opportunity cost)

So, panther should accept the apex & cheasapeaks corporation offers.

NOTE : NO TABLE IS VISIBLE IN THE QUESTION

Now as per question, suppose panther had been working at less than full capacity producing 8500 units of everlast at the time the apex offer was made, the minimum price panther should accept for stronglast uner these conditions= Variable total manufacturing cost + $1 (contribution towards the fixed cost)

=> Variable Cost $19 + contribution towards Fixed cost $1 = $20 (Minimum price panther should accept for stronglast)

Particulars Per Unit Cost ( in $)

Direct materials

10 direct manufacturing labor 1 manufacturing overhead (Variable) 8 manufacturing overhead (Fixed) 9 Total Manufacturing Cost 28 Add: Marketing Cost Variable 2 Total Cost 30 Selling Price 56 Profit / Margin $ 26

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