Guilford Packaging Company is a leading manufacturer of cardboard boxes and other product packagi...
Guilford Packaging Company is a leading manufacturer of cardboard boxes and other product packaging solutions. One of the company’s major product lines is custom-printed cake boxes that are sold to some of the country’s bestknown bakeries at a price of $0.50 per box. To maintain its high-quality image, Guilford uses a thick premium coated paper for all of its cake boxes. Based on annual production of 1,000,000 boxes, Guilford’s cost for producing a box is as follows:
|Total cost per box||$0.41|
Andrea Borden, a recent graduate of the Culinary Institute of America, is opening a new bakery in her hometown. She recently contacted Brad Lail, Guilford’s top salesperson, about purchasing cake boxes for her new store. Brad described Guilford’s boxes, emphasizing the high-quality paper and the unique printing process the company uses. Andrea is looking for ways to lower her operating costs, so after hearing Brad describe Guilford’s boxes, she told him that all she needed was a simple, unprinted box. Andrea also told Brad that she needs 11,600 boxes and is willing to pay $0.26 per box.
(c) After visiting with Andrea, Brad received a fax from one of London’s top bakeries. The bakery’s normal box supplier suffered some fire damage and is unable to ship the bakery’s order of 11,600 boxes this month. The bakery’s owner is asking if Guilford can fill a onetime rush order of 11,600 boxes printed with the bakery’s logo. The bakery is willing to pay a 10% price premium to expedite the order. If Guilford accepts the order, it will incur $824 in export taxes and shipping.
Calcuate the Profit on special order.
|Profit on special order||$ |
Answer Sale Price of cake box $0.50 Annual Production 100000 boxes Cost of producing one cake box Paper $0.16 Ink $0.03 Total Direct Material $0.19 Direct Labour $0.04 Variable Overhead $0.09 Total Variable cost of producing one cake box $0.32 Fixed Overhead absorption rate $0.09 Total Cost per cake box $0.41 1 Profit/Loss on Order Proposal from Andrea Boxes 11600 boxes Sales $0.26 per box $ 3,016 less Variable Cost $0.32 per box $ 3,712 Profit/Loss $ (696) 2 Profit/Loss on special order from London's top bakery 11600 boxes Sale price at 10% premium over and above $0.50 $0.55 $6,380 less Variable Cost $0.32 $3,712 less Additional export taxes and shipping cost for special order $824 Profit/Loss on special order $1,844 Fixed Cost of $0.09 would remain unchanged irrespective of speical order hence irrelevant for calculation of special order Hence it can be seen that special order from London bakery is fetching a profit of $1844 to Guilford Packaging Company So the company should go for the special order from London Bakery