The GB Company manufactures a variety of electric motors. The…

/in /by

Question Answered step-by-step The GB Company manufactures a variety of electric motors. The… The GB Company manufactures a variety of electric motors. The business is currently operating at about 70 percent of capacity and is earning a satisfactory return on investment. International Industries (II) has approached the management of GB with an offer to buy 120,000 units of an electric motor. II manufactures a motor that is almost identical to GB’s motor, but a fire at the II plant has shut down its manufacturing operations. II needs the 120,000 motors over the next four months to meet commitments to its regular customers; II is prepared to pay £19 each for the motors, which it will collect from the GB plant. GB’s product cost, based on the current planned cost for the motor, is:   Manufacturing overheads are applied to production at the rate of £18.00 a direct labor hour. This overheads rate is made up of the following components: Image transcription textVariable factory overhead 6.00 Fixedfactory overhead — direct 8.00 —allocated 4.00 Applied m… Show more… Show more Additional costs usually incurred in connection with sales of electric motors include sales commissions of 5 percent and freight expense of £1.00 a unit. In determining selling prices, GB adds a 40 percent mark-up to the product cost. This provides a suggested selling price of £28 for the motor. The marketing department, however, has set the current selling price at £27.00 to maintain market share. The order would require additional fixed factory overheads of £15,000 a month in the form of supervision and clerical costs. If management accepts the order, 30,000 motors will be manufactured and delivered to II each month for the next four months. a) Prepare a financial evaluation showing the impact of accepting the II order. What is the minimum unit price that the business’s management could accept without reducing its operating profit?  b) State clealy any assumptions container in the analysis of (a) above and discuss any other organisational or strategic factors that GB should consider.  Accounting Business Financial Accounting FINANCE 406 Share QuestionEmailCopy link Comments (0)