Problem:
A company makes surge protectors that are used to protect equipment in electrical storms. The costs associated with making a surge protector are shown below:
Unit-Level
Materials $7
Labor $12
Overhead $3
Batch Level Set-up $4000 per batch
Product level
Engineering $50,000 per year
Advertising $120,000 per year
The company normally makes and sells 10,000 surge protectors per year which are made in batches containing a 1,000 units. Derrick has an opportunity to sell 1000 protectors at a special order price of $24 per unit. Ignoring qualitative factors, the company should (1) except the offer because it would increase profitability by $2,000 or (2) to reject the offer because it would decrease profitability by $2,000 or (3) except the offer because it would increase revenue by $240,000 or (4)reject the offer because it would decrease profitability by $4,000.