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problem 1: Bradley Adhesives generates industrial glue for the local market. The given costs relate to the production of one gallon of glue:

2474_production of glue.jpg

An overseas customer has placed a special order to purchase 5,000 gallons for Rs 95 per gallon. The normal selling price is Rs 142.50. To complete this order, the company has to incur additional fixed cost of Rs 15,000 for every 3000 gallons.


a) Find out the net benefit (loss) to the company if the special order is accepted, stating any suppositions.

b) State and describe in brief some of the qualitative factors which need to be considered before finalizing the decision.

problem 2: Pacer Running Shoes produces two models: the Master shoe (a shoe aimed at competitive runners) and the Finisher (a shoe aimed at fitness buffs). Sales and costs for the most recent year are pointed below:

1434_sales and costs.jpg


a) Assume the company has 110,000 assembly hours available. Moreover, management believes that at least 2,000 pairs of each model should be produced so that the company has a presence in both market segments.

How many pairs of each model must be produced in the coming year?

b) Assume that management decides that at least 12,000 pairs of Master model should be produced. Determine the opportunity cost of this decision?

Cost Accounting, Accounting

  • Category:- Cost Accounting
  • Reference No.:- M96585

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