For DR.SAMUELSON only

Week 7: Case Analysis

Complete your answer to the questions below and submit

Physicians Medical Supply manufactures precision suture kits used by hospitals. The cost of producing a box of 2,500 suture kits is as follows:

Direct Materials $12.50

Direct Labor 6.25

Variable Factory Overhead 18.75

Fixed Factory Overhead 25.00

Variable selling, general, and administrative costs 18.75

Fixed selling, general, and administrative costs 4.00

The fixed factory overhead and fixed SG&A cost is allocated based on an assumption that the business will produce 400,000 boxes of suture kits per year. The company has capacity to produce 500,000 boxes without impacting either category of fixed cost.

a. The market for suture kits has become very competitive and management has requested to know the break-even price that can be charged for a box of suture kits, assuming production and sale of 400,000 boxes. What is the breakeven point for production without considering the special order?

b. Management has received a special order request for 100,000 boxes of “private label” suture kits. The order specifies a per box purchase price of $75. How will profitability be impacted if the order is accepted? Should Physicians agree to the special order? What non-quantitative items should Physicians Medical Supply consider in addition to the number calculations?