Question - You are the General manager of SPLENDID HOLDINGS BERHAD, a company that market SPLENDID ENERGY TONIC in the energy drink market in Malaysia. The product is current distributed through the wholesaller at a wholesale price of $50.00 per pack of 36 cans. The product is retailed at $3.50 per can at the retails stores especially the petrol station mini markets.
The production costs of the tonic is as follows for the month of February (with 5,000,000 cans produced):
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Total per month $
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Per can $
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|
Raw materials
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$2,500,000
|
0.50
|
|
Factory operators salaries & related expenses
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800,000
|
0.16
|
|
Operating overheads - utilities and supplies
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300,000
|
0.06
|
|
Fixed overheads - supervisors, depreciation
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1,500,000
|
0.30
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|
Total costs
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5,100,000
|
1.02
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A special order was received from the Bank Rakyat Islamic Bhd to supply 5,000,000 cans of SPLENDED ENERGY TONIC for the annual marathon run event of 120 km run from Kuala Lumpur to Ipoh organised by the bank. However as this is a charity event, the bank has requested a special price of $ 30.00 per pack (of 36 cans ) or $0.83 per can. This is a big discount from the wholesale price of $50.00 and $3.50 per can retail price.
The factory is currently operating at 50% capacity. Hence the increase in production volume may not create any operational constrain. Furthermore the delivery period is still 90 days away. No additional fixed cost will be incurred in taking up the order.
Required:
a. Should the company entertain the order? Show your working to back your decision.
b. What if the factory is currently operating at 70% of the capacity?
c. If the company have to incur a delivery costs of $ 150,000, should the decision be different? Show workings.
d. What are all the qualitative consideration that must be taken in the decision?