Valstar is a medium sized paint manufacturer that has experienced substantial growth in the past three years. Valstar is known for its high quality paints and reliable delivery schedules. resulting in high customer satisfaction. Valstar focuses on these strategic objectives of quality, reliability and growth. Valstar manufactures paint in five gallon buckets (units) for commercial use in building construction. Valstar's operating capacity is 22,000 five gallon buckets (units) per month and is currently selling 20,000 buckets each month. Valstar has received a request for a special order of 5,000 five gallon buckets of paint for $125,000 from A1 Construction. A1 Construction is the largest construction company in the metropolitan area and surrounding region.
A1 is not a current customer of Valstar's. Production costs would be the same and Valstar would incur additional set-up costs of $5,000 to complete the A1 order. The following information is for Valstar's current operations: Sales & production data for 20,000 5-gallon units Amounts per unit (5-gallon bucket) Sales price $ 38.00 Direct materials 7.00 Direct labor 5.00 Variable overhead 3.00 Fixed overhead 12.00 Variable marketing 2.00 Fixed marketing 1.00 No marketing costs would be associated with the special order. Since the order is needed to complete construction of one building that is near the estimated completion date A1 requires that Valstar fill the entire order of 5,000 units. Required: Complete each of the following questions. SHOW CALCULATIONS TO SUPPORT ANSWERS, SPECIFICALLY QUESTIONS 1. - 4. and 5 .- 7. as needed. - NO SUPPORTING CALULATIONS = NO CREDIT. 1.
Does Valstar have the capacity to accept the special order from A1?