Jupiter Corporation manufactur
January 18th, 2023
Jupiter Corporation manufactures skateboards. Several weeks ago,the firm received a special-order inquiry from Venus, Inc. Venusdesires to market a skateboard similar to one of Jupiter’s and hasoffered to purchase 11,000 units if the order can be completed inthree months. The cost data for Jupiter’s model no. 43 skateboardfollow.
| Direct material | $ | 8.20 | |
| Direct labor: 0.25 hours at $9.00 | 2.25 | ||
| Total manufacturing overhead: | |||
| 0.5 hours at $20 | 10.00 | ||
| Total | $ | 20.45 | |
Additional data:
- The normal selling price of model no. 43 is $26.50; however,Venus has offered Jupiter only $15.75 because of the large quantityit is willing to purchase.
- Venus requires a modification of the design that will allow a$2.10 reduction in direct-material cost.
- Jupiter’s production supervisor notes that the company willincur $3,700 in additional setup costs and will have to purchase a$2,400 special device to manufacture these units. The device willbe discarded once the special order is completed.
- Total manufacturing overhead costs are applied to production atthe rate of $20 per machine hour. This figure is based, in part, onbudgeted yearly fixed overhead of $750,000 and planned productionactivity of 60,000 machine hours (5,000 per month).
- Jupiter will allocate $1,800 of existing fixed administrativecosts to the order as “… part of the cost of doingbusiness.”
- 2-a. Assume that Jupiter’s current productionactivity consumes 70 percent of planned machine-hour activity.Calculate the current available machine-hours.
- 2-b. Can the company accept the order and meetVenus’ deadline?
- What options might Jupiter consider if management truly wantedto do business with Venus in hopes of building a long-termrelationship with the firm?
Answer:
| 2(a)Current available machine-hours. | |||||||||||
| Planned Machine Hours | 15000 | 5000 per month * 3 Months | |||||||||
| Less: Current usage for production | 10500 | 15000*70% | |||||||||
| Available Hours | 4500 | ||||||||||
| 2(b) Canthe company accept the order and meet Venus’ deadline? | |||||||||||
| Macine Hours Required | 5500 | 11000*0.5 | |||||||||
| Available Hours | 4500 | Computed above | 9 | ||||||||
| Since the required machine hour is greater than availablemachine hour the company cannot accept the order as there is nosufficient capacity for accepting the same. | |||||||||||
| Whatoptions might Jupiter consider if management truly wanted to dobusiness with Venus in hopes of building a long-term relationshipwith the firm? | |||||||||||
| i) Jupitarcan sell to Venus by cutting its current business in hopes ofbuilding a long-term relationship with the firm | |||||||||||
| ii) It can outsource the Units | |||||||||||
| iii) It canmotivate its employees for overtime | |||||||||||
| iv) It canalso install additional capacity to meet the demand | |||||||||||
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