# Special-o r der decision. Fri-Flask specialises in the manufacture of one-litre plastic bottles. The 1 answer below »

Special-o r der decision.

Fri-Flask specialises in the manufacture of one-litre plastic bottles. The plastic moulding machines are capable of producing 100 bottles per hour. The firm estimates that the vari- able cost of producing a plastic bottle is 25 øre. The bottles are sold for 55 øre each.

Management has been approached by a local toy company that would like the firm to pro- duce a moulded plastic toy for them. The toy company is willing to pay DKr 3.00 per unit for the toy. The unit variable cost to manufacture the toy will be DKr 2.40. In addition, Fri-Flask would have to incur a cost of DKr 20 000 to construct the mould required exclusively for this order. Because the toy uses more plastic and is of a more intricate shape than a bottle, a moulding machine can produce only 40 units per hour. The customer wants 100 000 units. Assume that Fri-Flask has a total capacity of 10 000 machine-hours available during the period in which the toy company wants delivery of the toys. The firm’s fixed costs, excluding the costs to construct the toy mould, during the same period will be DKr 200 000.

Required

1 Suppose the demand for its bottles is 750 000 units, and the special toy order has to be either taken in full or rejected totally. Should Fri-Flask accept the special toy? Explain your answer.

2 Suppose the demand for its bottles is 850 000 units, and the special toy order has to be either taken in full or rejected totally. Should Fri-Flask accept the special toy order? Explain your answer.

3 Suppose the demand for its bottles is 850 000 units, and Fri-Flask can accept any quan- tity of the special toy order. How many bottles and toys should it manufacture?

4 Suppose the demand for its bottles is 900 000 units, and the special toy order has to be either taken in full or rejected totally. Should Fri-Flask accept the special toy order? Explain your answer.

5 Suppose the demand for its bottles is 900 000 units, and Fri-Flask can accept any quan- tity of the special toy order. How many bottles and toys should it manufacture?

6 Suppose the demand for its bottles is 950 000 units and Fri-Flask can accept any quantity of the special toy order. How many bottles and toys should it manufacture?

7 The management has located a firm that has just entered the moulded plastic business.

This firm has considerable excess capacity and more efficient moulding machines, and is willing to subcontract the toy job, or any portion of it, for DKr 2.80 per unit. It will con- struct its own toy mould. Suppose the demand for its bottles is 900 000 units, and Fri-Flask can accept any quantity of the special toy order. How many toys should it sub- contract out?

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