Question

QUESTION 3                                                                                                                        

Plastique Pty Ltd sells only one type of plastic container for multi-purpose packaging. Data relating to the product for 2019 are as follows:

Number of Units sold	45 000
Selling Price per unit	$26
Variable Manufacturing Cost per unit	$8
Variable Selling Cost per unit	$4.50
Annual Fixed Non-Manufacturing Cost	$80 000
Annual Fixed Manufacturing Cost	$265 600

The CEO of Plastique currently is under pressure from the shareholders to increase profits to

$432 000 in 2020.

6. The production capacity of Plastique Pty Ltd is 65,000 plastic containers per year. The company received an offer from Food Trading Ltd to purchase from Plastique an additional 5,000 plastic containers in 2020 at $15 per unit. Plastique Pty Ltd would not incur any selling costs for this order but it would have to hire a supervisor for this production at a cost of $20,000 per year. All other costs are the same as the data for 2019. Should Plastique Pty Ltd accept this order? Why? (show all your calculations to justify your answer)

Answer 1

Calculation of income for the special order

Particulars	$
Sales (5000×15)	75,000
Less variable costs
Variable manufacturing cost (5000×8)	40,000
Contribution margin	35,000
Fixed cost	20,000
Operating	15,000

* variable selling cost not ocurred for this special order

* an additional fixed cost of $20,000 is ocurred for supervisor for this special order.

* the company has the capacity of 65,000vunits to produce . After accepting this special order the company produce only total 50,000 units . That is under company capacity which means the special order doesn't produce any fixed costs.

Plastique pty Ltd should ACCEPT the special order. Because it will increase the operating income by $15,000.

The above calculations and explanations clearly indicate why the company accept the special order.