21 Feb Intercontinental Chemical Company, located in Buen
Intercontinental Chemical Company, located in Buenos Aires, Argentina, recently received an order fora product it does not normally produce. Since the company has excess production capacity, managementis considering accepting the order. In analyzing the decision, the assistant controller is compiling therelevant costs of producing the order. Production of the special order would require 8,000 kilograms oftheolite. Intercontinental does not use theolite for its regular product, but the firm has 8,000 kilogramsof the chemical on hand from the days when it used theolite regularly. The theolite could be sold to achemical wholesaler for 14,500 p. The book value of the theolite is 2.00 p per kilogram. Intercontinentalcould buy theolite for 2.40 p per kilogram. ( p denotes the peso, Argentina’s national monetary unit.Many countries use the peso as their unit of currency. On the day this exercise was written, Argentina’speso was worth .3274 U.S. dollar.) Intercontinental’s special order also requires 1,000 kilograms of genatope, a solid chemical regularly used in the company’s products. The current stock of genatope is 8,000 kilograms at a book value of 8.10 p per kilogram. If the special order is accepted, the firm will be forced to restock genatope earlier than expected, at a predicted cost of 8.70 p per kilogram. Without the special order, the purchasing manager predicts that the price will be 8.30 p when normal restocking takes place. Any order of genatope must be in the amount of 5,000 kilograms. (p denotes Argentina’s peso.
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