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short term decision making

Forums › Ask CIMA Tutor Forums › Ask CIMA P1 Tutor Forums › short term decision making

  • This topic has 1 reply, 2 voices, and was last updated 5 years ago by Cath.
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  • October 6, 2019 at 2:49 am #548190
    kyanda19090
    Member
    • Topics: 4
    • Replies: 1
    • ☆

    please help with this question

    A company produces and selling sports bicycles at a standard price of $250,000 each. The cost per bicycle is as follows;
    Direct materials 86,000
    Direct labor 45,000
    manufacturing overhead 51,000
    production cost per bicycle 182,000
    The variable portion of the above manufacturing overhead is 6,000 per bicycle. The company has received a special order from a sports club to supply them with 100 specially modified bikes at a price of $180,000. The order would have no effect on the company’s total fixed manufacturing overhead costs. The modifications to the bikes consists of welded brackets to hold radios, handcuffs and other gears. These modifications would require addition $17,000 per bike in incremental variable costs. In addition, the company would have to pay a graphic design studio $1,200,000 to design and cut stencils that would be used for putting the logo of the club and other identifying marks on the bikes.
    The order should have no effect on the company’s other sales. The production manager says that she can handle the special order without disrupting any of the regular scheduled production.

    should the company accept the special order or not?

    October 24, 2019 at 10:56 pm #550722
    Cath
    Participant
    • Topics: 0
    • Replies: 447
    • ☆☆☆

    Hi, Thank you for your question – but I think John (Moffat) has explained to you already on ACCA FMA board (5th October)… we can not answer exam questions in this way -you presumably have an answer in the textbook – so please let us know if there is some aspect of the answer or explanation that you don’t understand and we will gladly clarify.

    As mentioned to you on the FMA board, this its covered in detail in the relevant costing video lectures.

    Thanks

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