Problem - Use Microsoft Excel to explore costs and review the problem 11-35 Make or Buy. Direct material=6; Direct labor= 8 and Overhead =9 total costs = 23 per presure value unit. Williams Company in Wisconsin, manufactors a variety of industrial valves and pipe fittings that are sold in nearby states. Currently the company is operating at 70% capacity and is earning a satisfactory return on investment. Glasgow Industries LTD has approached management with an offer to buy 120,000 pressure valves over the next four months. Glasgow is willing to pay $21 per pressure valve.
Williams product costs for a pressure valve is : Direct materials= $6; Direct labor = 8 and Manufacturing Overhead = 9 total costs = 23 per valve.
In determining selling price ; Williams adds 40% to its product costs which gives a selling price of $32. The marketing department has set current selling price at $30 to maintain market share. Production Manager believes it can handle the Glasgow order without disrupting its scheduled production. If the Glasgow order is accepted;
Williams will manufacture and ship 30,000 pressure valves a month for four months. Shipments will be made in weekly consignments FOB shipping point.
Questions:
1. Determine how many extra direct labor hours will be needed each month to fill the Glasgow order?
2. Prepare an analysis showing the impact on operating profits of accepting Glasgow's order
3. Calculate the minimum unit price That Williams management could accept for the Glasgow order without reducing operating income.
4. Use the goal seek function in excel to calculate the minimum unit selling price you calculated in question 3.
5. Suppose that if the Glasgow order were accepted , sales of $5,000 units per month to regular customers would be precluded (at a selling price of $30 per unit) all other factors are given in this problem. What is the revised break-even selling price for the Glasgow special sales order?
6. Identify the strategic factors that Williams should consider before accepting the Glasgow Order.
7. Identify the factors related to international business that Williams should consider before accepting the Glasgow order.