On November 25,2014,Marquez Golf Co

Essay

On November 25,2014,Marquez Golf Co.received a special order for 5,000 three-wood golf club sets.These golf clubs will be marketed in Japan.Ito Imports Inc. ,the purchasing company,wants the clubs bulk packaged and is willing to pay $55 per set for the clubs.The president of Marquez Golf Co.has gathered the following product costing information about the set of woods being discussed:
· Direct materials (wood),$600 per 100 sets
· Direct materials (metal shafts),$1,000 per 100 sets
· Direct materials (grips),$150 per 100 sets
· Direct labor is $20 per set
· Variable manufacturing costs are $12 per set
· Fixed manufacturing costs are 20 percent of direct labor dollars
· Variable selling expenses are $10 per set
· Variable shipping costs are $7 per set
· Fixed general and administrative costs are 30 percent of direct labor dollars
Bulk shipping costs will total $11,000,thus eliminating both variable selling and variable shipping costs from consideration.The company did not expect this order and will reach planned production capacity for the year.However,there is enough plant capacity for the special order.Round answers to two decimal places.
a.Prepare an analysis for the president to use in deciding whether to accept or reject the offer by Ito Imports Inc.What decision should be made?
b.What is the lowest possible price Marquez Golf Co.could charge per set of woods and still make a $9,000 profit on this order?