Posted: August 9th, 2016

What is the new order?

Cost Per Case
Standard Commercial
Direct Material $7.00 $8.00
Direct Labor $4.00 $4.00
Variable manufacturing Overhead $1.00 $2.00
Fixed manufacturing Overhead* $4.00 $5.00
Total Manufacturing Cost $16.00 $19.00
Variable Selling and Administrative Costs $4.00 $7.00

*Depreciation charges are 50 percent of the fixed manufacturing overhead of each line.

The following schedule reflects the consensus of top management regarding the price-volume alternatives for the Super Clean products for the last six months of the current year. These are essentially the same alternatives management had during the first six months of the year.

Standard Compound Commercial Compound
Alternative Prices (per case) Sales Volume(in cases) Alternative Prices (per case) Sales Volume(in cases)
$18.00 120,000.00 $25.00 175,000.00
$20.00 100,000.00 $27.00 140,000.00
$21.00 90,000.00 $30.00 100,000.00
$22.00 80,000.00 $32.00 55,000.00
$23.00 50,000.00 $35.00 35,000.00

Gargantuan’s top management believes the loss for the first six months reflects a tight profit margin caused by intense competition. Management also believes that many companies will leave this market by next year and profit should improve.

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