PRODUCTION OF SPECIALIZED EQUIPMENT Company A 10 th of August 2017

INITIAL DATA Tasks Calculate non profit price Reduction of losses at the buyer's refusal We have Almost completed a specialized piece of equipment. Work to date costs are $24,795 Additional direct materials $2,500 The design for the equipment $1,500 Potential customer

ADDITIONAL PRODUCTION Welding department 1 worker $280 wage rate 9 weeks $0 Machining department 2 workers $240 wage rate 5 weeks $2,400 Assembly department 2 workers $200 wage rate 8 weeks $3,200 Total direct wages $5, weeks Due to the incomplete workload of the welding department, additional involvement of workers will not be required

COST ITEM RATIO Cost items Welding department Machining department Assembly department Base Variable overheads15% Direct wages Fixed production overhead 120%80%40%Direct wages Fixed administration 4,4% Direct wages +Variable overheads + Fixed production overhead

COST ITEMS OF NON PROFIT PRICE

NON PROFIT PRICE

REDUCTION OF LOSSES In case of customers refusing we plan to Use materials ($2,500) for an other project after modification. Cost of modification is $1,954. This will allow to save $4,000 on materials Sale the design for the equipment for $1,500 Sale the part of materials as scrap for $5,200 Total reduction of losses will be $4,746 or 18%