Mary Baldwin College Operations And Supply Chain Management Assignment Help - The Melville Company

Question - The Melville Company produces a single product called a Pong. Melville has the capacity to produce
60,000 Pongs each year. If Melville produces at capacity, the per unit costs to produce and sell one
Pong are as follows. Use the data for questions 7 to 9.

Direct materials
$15

Direct labor
12

Variable manufacturing overhead
8

Fixed manufacturing overhead
9

Variable selling expense
8

Fixed selling expense
3
The regular selling price for one Pong is $80. A special order has been received by Melville from
Mowen Company to purchase 6,000 Pongs next year. If this special order is accepted, the variable
selling expense will be reduced by 75%. However, Melville will have to purchase a specialized
machine to engrave the ...Read More Mowen name on each Pong in the special order. This machine will cost
$9,000 and it will have no use after the special order is filled. The total fixed manufacturing overhead
and selling expenses would be unaffected by this special order.
Assume Melville anticipates selling only 50,000 units of Pong to regular customers next year. If
Mowen Company offers to buy the special order units at $65 per unit, the effect of accepting the
special order on Melville's operating income for next year should be a:
Answer
$60,000 increase.
$36,000 increase.
$90,000 decrease.
$159,000 increase.


Assume Melville anticipates selling only 50,000 units of Pong to regular customers next year. At what
selling price for the 6,000 special order units would Melville be economically indifferent between
accepting or rejecting the special order from Mowen? (That is the price at which the total contribution
with or without the special order would be the same.)
Answer
$38.50.
$37.00.
$51.50.
$49.00.

Assume Melville can sell 58,000 units of Pong to regular customers next year and sale of 6000 units
to this special order customer will result in losing the contribution on sales to regular customers at the
regular price due to the 60,000 unit maximum production capacity. If Mowen Company offers to buy
the special order units at $65 per unit, the effect of accepting the special order on Melville's operating
income next year should be a:

Answer
$192,000 increase.
$36,000 increase.
$47,000 increase.
$11,000 increase. ...Read Less

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