29 Jun Question Consider the following information, prepa
Question
Consider the following information, prepared based on a monthly capacity of 50,000 units:
Category
Cost per Unit
Variable manufacturing costs
$12.00
Fixed manufacturing costs
$1.00
Variable marketing costs
$3.00
Fixed marketing costs
$2.00
Capacity cannot be added in the short run and the firm currently sells the product for $20 per unit.
Consider each of these scenarios independent of each other.
a) The company is currently producing 50,000 units per month. A potential customer has contacted the firm and offered to purchase 10,000 units this month only. The customer is willing to pay $18 per unit. Since the potential customer approached the firm, there will be no variable marketing costs incurred. Should the company accept the special order? Why or why not?Be specific.
My answer (what I think is right)
Total capacity = 50,000 units
Current Production = 50,000 units
Offer = 10,000
Profit per unit= $18 – $12 =$6.00
10,000 units x $6.00 = $60,000
Yes the company should accept the order because operating income will increase by $60,000 ($18-$12) x 10,000 units and the offer selling price per unit is higher than the variable manufacturing costs.
This is an example of how the professor wants the questions to be answer
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