ITC506 Topics in Information Technology Ethics

ACC00724 Accounting for Managers - Assessment 2

Question 2 (7 marks)
You are the accountant for Go-Go-Grow Ltd, a children's electric toy car manufacturer that is located in Geelong and has customers in Australia and the USA. Their estimated current sales volume is 5,000 units per month and based on this level of production, the company has budgeted the following costs and prices per unit:
Manufacturing Costs per unit (Based on production of 5,000 units per month)

Direct Material Cost                                                  $150.00
Direct Labour Cost                                                     75.00
Variable Factory Overhead                                      35.00
Fixed Factory Overhead                                           40.00
Total Manufacturing Cost                                        300.00
Selling & Administrative Costs
Variable Selling and Administrative Cost          35.00
Fixed Selling and Administrative Cost                25.00 60.00
Total Cost Per Unit                                                     360.00
Selling Price Per Unit                                                $720.00

Mantel Ltd is an overseas company that sells toy cars all over the world, with the majority of their market to wealthy new parents in China and India. They have approached Go-Go-Grow about obtaining a quote for a special one-off order as they would like to purchase 20,000 toy cars. As this will be a special order sale, there will be no costs incurred for variable selling and administrative costs and no additional fixed costs will be incurred.

This order is because their existing supplier has suffered substantial earthquake damage to their premises, but the CEO of Mantel Ltd also hinted to your CEO that if they are satisfied with the product, this might not be the last deal between the two businesses.

Required:
1. Given this knowledge, what amount should Go-Go-Grow Ltd. bid for this contract in each of the following circumstances:
a) The Go-Go-Grow’s annual factory capacity is 90,000 units.
b) The Go-Go-Grow’s annual factory capacity is 75,000 units. (To fulfil the order, you may have to pull the product from your regular production).
2. Assuming that the annual factory capacity is 90,000 units, prepare a report for your CEO explaining your justification for the bid price that you came up with in 1 a).

Discuss the possible opportunities and potential disadvantages with accepting this contract with Mantel. Give both quantitative and qualitative support to your discussion.