Assignment Task: A company has been using a truck for eight years. For this year, this old truck requires repairs estimated at $7,000 to make it road worthy again. The company management is considering replacing the old truck and instead buying a 5-year-old used truck for $7,000 cash. The following costs are estimated for the two trucks:
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Old Truck
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New Truck
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|
Acquisition cost
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$30,000
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$7,000
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Repairs
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$7,000
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-
|
|
Annual operating costs (Gas, maintenance, insurance)
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$2,580
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$1,700
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During the year, the company is approached by a potential customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. The company has excess capacity. The following per unit data apply for sales to regular customers:
Variable costs:
Direct materials $130
Direct labour 60
Manufacturing support 105
Other costs 95
Fixed costs:
Manufacturing support 175
Marketing costs 65
Total costs 630
Markup (50%) 315
Targeted selling price $945
Required:
1. Which truck should the company choose if financial factor is the only consideration? Support your answer with computation of the cost savings amount.
2. What is the change in operating profits if the one-time-only special order for 1,030 units is accepted for $550 a unit by the company?
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