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Hire Writer In this case the customer pays all shipping costs. Items not listed in the preceding categories, including general and executive office costs, research, development, engineering costs, and miscellaneous items.
Answer the following questions: Calculate the incremental, or marginal, cost per chair to Leisure Products of accepting the order from Southeast? What assumptions did you make in calculating the incremental cost in Question 1? What additional information would be helpful in making these calculations?
Based on your answers to Questions 1 and 2, should Leisure Products accept the Southeast order? What additional considerations might lead Leisure Products to reject the order? While calculating incremental cost in Q1, I made following assumptions: The cost of labor would remain same i. LP will be able to produce 30, chairs to fulfill the order from Southeast with its existing capacity.
|ASTM Organizational Membership Directory||Most of its output is sold to do-it-yourself warehouse stores e.|
The cost of materials will remain same. There is additional information given in the case to support my calculation in Q1.
Since the customer is bearing the shipping cost, the selling and distribution costs is ignored for decision making. Administrative cost and plant overhead are indirect costs and are allocated to estimate size of production.
Since these costs do not change irrespective of production, such cost is not considered for calculation of marginal cost per chair. Since selling price per chair exceeds the marginal cost per chair, LP should accept the order. This order will have positive impact on the profitability of LP.
Following considerations may lead Leisure Products to reject the order: The existing capacity is not adequate and new capacity would be required to complete the order.
Overtime and more labor resources affecting the labor cost would be required to complete the order.
LP will have to bear the selling and distribution costs. Changes in market affecting material or labor cost can affect the decision. How to cite this page Choose cite format:Statoil is an international energy company with operations in 34 countries.
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