Decision making and relevant information
Part B is a continuation from Part A.
Steelworks Ltd's current machinery has a capacity to manufacture 36 000 trolleys per month (32 000 Standard trolleys and 4 000 Child trolleys) but has a constraint on the direct manufacturing labour hours. The company rents very large premises that have enough space to acquire more machinery if required. The company received an order from an overseas customer to manufacture 10 000 Child trolleys, to be delivered 1 January 2013. The trolleys can be manufactured any month from July to December 2012. To meet the requirements of the overseas customer, the Child trolleys will have to be customised to add a set of brakes to the trolley. Steelworks Ltd does not have the equipment to make the brakes. They could buy equipment for $30 000 to make the brakes and add the brakes to the trolleys themselves. Alternatively they can buy the brakes from a supplier for $6 per set and add the brakes to the trolleys. Regardless of their decision about the brakes, if they decide to accept this order, they will manufacture the trolleys. The customer is prepared to pay $90 per trolley.
Required:
Advise the CEO of Steelworks Ltd whether to accept or reject the order. Discuss the following issues that Steelworks Ltd will have to consider in deciding whether to accept or reject the order.
1. Relevant costs.
2. Other financial issues and costs.
3. Other non-financial issues.
Justify your answers and decisions for the three issues above with figures. Please show all your calculations to all the figures you provide in Part B. You may use the figures you calculated in Part A in answering Part B, but you do not necessarily have to.