Problem
The management accountant of Whisky Brothers has prepared the following snapshot of the firm's labeling department for a typical month:
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Monthly production
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12,500 units
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Direct materials per month
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$18,750
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Staff (four staff @ $6,500 per month)
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$26,000
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Variable overhead per month
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$7,500
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Equipment rental per month
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$26,000
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Allocated factory building depreciation and other fixed costs per month
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$13,400
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An external printing specialist has now offered to provide bottle labeling services. The external printer will charge $4.25 per bottle. If Whisky Brothers accepts this offer and outsources labeling:
A. Three labeling staff team members will be made redundant.
B. The space currently used within the factory will be used for storage purposes.
C. It will cost $2,300 per month to inspect the outputs of the external printing specialist.
Task
A. Using Excel, evaluate whether this order is acceptable on financial grounds.
B. Determine the minimum price per label that would make the offer by the external printing specialist viable.
C. Identify and discuss at least three relevant qualitative (i.e. ethical, environmental and/or strategic) factors that should be considered in the evaluation of this special order.