Case 18-1 Huron Automotive Company

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Question No 7.
Assuming the facts of question no 6. Except that the idle facilities to be used to produce 800 modified hydraulic hoist/month. Sale Price - $4950 each.
Variable Mfg Cost - $3025/unit
Variable Markt Cost - $550/unit
Fixed Mfg O/H and Marketing cost remains unchanged

What is the maximum price paid to the contractor?? Should the contract be accepted for a price of $ 2475/unit to the contractor?? Solution:

Particulars.| 3000 Hoists| Contract for 1000 outsourced hoist Production of 800 modified Hoists Production of 2000 regular hoists| | Produced| |
| In-House | |
| | For 2000 units| For 1000 units | For 800 units | Total| Revenue| 3000*4350= $1,30,50,000| 2000*4350= $87,00,000| 1000*4350= $43,50,000| 800*4950= $39,60,000| $ 1,70,10,000| Variable Mfg cost| 3000*1795=($ 53,85,000)| 2000*1795= ($35,90,000)| -| 800*3025=$(24,20,000)| ($ 60,10,000)| Variable Mrktg Cost| 3000*275= $ (8,25,000)| 2000*275= ($ 5,50,000)| 220*1000 = ($ 2,20,000)| 550*800= $(4,40,000)| ($ 12,10,000)| Contribution| $ 68,40,000| $ 45,60,000| $ 41,30,000| $ 11,00,000| $97,90,000| Fixed Mfg Cost| ($19,80,000)| | | | ($19,80,000) | Fixed Mrktg Cost| ($23,10,000)| | | | ($23,10,000) | Income| $ 25,50,000| | | | $55,00,000 – X|

Let the amount paid to contractor be ‘X’
Payment to be done $25,50,000 = $55,00,000 - X
X = $55,00,000 - $25,50,000 $ 29,50,000 which is $2950/unit. The proposal should be accepted for a price of $ 2475/unit to the contractor.
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