University of Canterbury Department of Accounting and Information Systems ACCT222
Rightway Printers, a book printing shop, is operating at 95 per cent capacity. The entity has been offered a special order for book printing at $8.50 per book; the order requires 10 per cent of capacity. No other use for the remaining 5 per cent idle capacity can be found. The average cost per book is $8, and the contribution margin per book for regular sales is $1.50.
Johnson and Sons Ltd produces organic orange juice from oranges it grows. Unfortunately, it has been a bad year for oranges because of severe frosts. Johnson only has 10,000 litres of juice. It usually sells 15,000 litres at $3 per litre. The variable costs of raising the oranges are $0.50 per litre. Johnson has loyal customers, but its managers are worried the company will lose customers if it does not have juice available for sale when people stop by the farm. A neighbour is willing to sell 5000 litres of extra orange juice at $2.95 per litre.
11.39 Special order capacity constraint; relevant information; qualitative factors
11.25 Constrained resource; qualitative factors
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