29 Jun uestion Consider the following information, pre
uestion
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
Current
With Order
Units sold
30,000
40,000
Rev
$300,000
$355,000
Var man
$150,000
$200,000
Var mktg
$30,000
$30,000
CM
$120,000
$125,000
Fixed man
$60,000
$60,000
Fixed mktg
$20,000
$20,000
Operating income
$40,000
$45,000
Yes, because OI will increase by $5,000 ($5.50 – $5.00) x 10,000 units
b) The company is currently producing 40,000 units per month. A potential customer has contacted the firm and offered to purchase 10,000 units this month only. Since the potential customer approached the firm, there will be no variable marketing costs incurred. What is the minimum amount that the firm should be willing to accept for this order?
This is an example of how the professor wants the questions to be answer
(Lost revenue = $4.50 per unit, savings = $1 per unit)
Current
With Order
Units sold
40,000
40,000
Rev
$400,000
$355,000
Var man
$200,000
$200,000
Var mktg
$40,000
Our website has a team of professional writers who can help you write any of your homework. They will write your papers from scratch. We also have a team of editors just to make sure all papers are of HIGH QUALITY & PLAGIARISM FREE. To make an Order you only need to click Ask A Question and we will direct you to our Order Page at WriteDemy. Then fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.
Fill in all the assignment paper details that are required in the order form with the standard information being the page count, deadline, academic level and type of paper. It is advisable to have this information at hand so that you can quickly fill in the necessary information needed in the form for the essay writer to be immediately assigned to your writing project. Make payment for the custom essay order to enable us to assign a suitable writer to your order. Payments are made through Paypal on a secured billing page. Finally, sit back and relax.
About Writedemy
We are a professional paper writing website. If you have searched a question and bumped into our website just know you are in the right place to get help in your coursework. We offer HIGH QUALITY & PLAGIARISM FREE Papers.
How It Works
To make an Order you only need to click on “Order Now” and we will direct you to our Order Page. Fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.
Are there Discounts?
All new clients are eligible for 20% off in their first Order. Our payment method is safe and secure.