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ACC00724: Accounting for Managers - Management Accounting - Accounting Assignment Help
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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:
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Task: 1 Pacific Telemet Ltd. manufactures a high end smart phone with dual sim cards that is popular with business executives who travel overseas frequently. Related financial data for this product for the last year is as follows: The CEO is under pressure from the Board of Directors to increase the profitability of the phones and has asked executives from different departments for suggestions. Three managers have responded with the following ideas:
- a) The production manager, David Groate, suggests making improvements to the quality of the product. These quality improvements would increase the variable costs by $36 per unit. This would be accompanied by a $60,000 national advertising campaign which he expects would boost sales volume by 30%
- b) The sales manager, Kirsten Arnold, believes that the product is unique, but not yet well known enough. Based on her market research, she feels that advertising should be increased by $120,000 and that the product would also be able to bear an increase in price of $60 with sales volume reduced by 12% from the current levels.
- c) The marketing director, Jess Sutherland, wants to undertake a promotion campaign where a $40 rebate is offered to the first 2,500 phones sold. She expects that the rebate program would boost sales by an additional 2,000 units if spending on advertising was increased by $50,000.
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:
- 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).
- 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.
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