Fineprint Company, owned and managed by John Johnson, prints high color brochures for its clients primarily in the central Virginia area. The facility is located at Charlottesville, Virginia.
The company is currently operating at full capacity of 150,000 brochures per month. It employs one sales representative and one printing press operator, and also relies on temporary labor from time to time. The monthly operating costs summary for the company when it operates at full capacity is as given below:
Table ‘1’
Monthly costs at 150,000 volume
Manufacturing costs
Direct material - variable
Direct labor – variable
Direct labor – fixed
Manufacturing overhead – variable
Manufacturing overhead - fixed
$6,000
1,500
3,000
1,500
3,375
Total manufacturing costs $15,375
Non-manufacturing costs
Sales – variable
Sales – fixed
Corporate - fixed
$1,500
1,875
3,750
Total non-manufacturing costs $7,125
Total costs $22,500
The company charges its customers $17 for every 100 brochures printed.
The case presents a typical situation faced by owner John Johnson – whether to accept a one-time printing order. The potential customer is capable of paying only $10 per 100 brochures. She requires 25000 brochures printed. There is no potential for future business.
Cost Theory
The case provides details of certain kinds of costs as discussed below –
Direct costs – Direct costs can be directly traced to a cost object such as a product or department. They do not have to be allocated to a product, department or any cos ...