Managerial Accounting

Hubert etHixCie makes rucksacks. It has developed and patented a highly effective waterproof material and a revolutionary design. These make the company’s products very much sought after, and the rucksacks sell at a premium price of €68.50 to camping shops and hiking organisations. Annual sales are 20 000 rucksacks. Variable costs of manufacture are €29.00. The company’s current level of fixed costs is €382 420. Most of the company’s sales are within France and the UK, but there has been growing interest in Scandinavia and last financial year export sales to Norway and Sweden accounted for 10% of total sales. The company has just received an enquiry from a Moroccan hiking organisation. The director of the organisation, Raoul, tried out one of the company’s rucksacks on a recent hiking trip in the Atlas mountains, and is convinced that it’s the best rucksack he’s ever used. He would like to start supplying the rucksack in Morocco. However, he knows thatthere will be very few buyers in Morocco at the premium prices charged by retailers in Western Europe for the company’s products. Raoul suggests that a reasonable price would be €50.00 and that the specification could perhaps be lowered, as the weather conditions are rather better in Morocco than in many parts of Europe. He estimates that annual sales in Morocco would be around 1000 units. Hubert etHix’s production director modifies the design slightly, and estimates that the variable costs of the new design would be €26.30.

You are required to advise the directors on whether or not they should accept the order, taking into consideration both financial and non-financial factors.

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