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During the third year of operations, Big Al's estimates that 415,000 pizzas (385,000 meat and 30,000 veggie) will be produced. Direct material costs per unit are $0.74 per meat pizza and $0.62 per veggie pizza. Direct labor costs are $2.51 per meat pizza and $2.78 per veggie pizza. Monthly fixed selling and administrative costs are $15,300 while monthly fixed manufacturing overhead is $2,851. The variable overhead cost is $0.55 per pizza. The sales price for veggie pizzas is $5.25 per pizza and the sales price for meat pizzas is $5.00. In March of Year 3, Big Al's receives a special order from an athletic arena to purchase 5,000 meat pizzas and 3,000 veggie pizzas for a special charity event.

A. Assuming that Big Al's has sufficient excess capacity, what is the minimum price that Big Al's would be willing to accept for this special order? Assuming that Big Al's does not have sufficient excess capacity, what minimum price would be acceptable? What qualitative factors should Big Al's consider before agreeing to accept the special order?

B. Big Al's is nearing its manufacturing capacity and needs to consider ways to increase throughput. What options does Big Al's have to increase capacity? What bottlenecks does it face? What recommendations would you make?

Accounting Basics, Accounting

  • Category:- Accounting Basics
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