Problem:
You are the general manager of a firm that manufactures personal computers. Due to a soft economy, demand for PCs has dropped 50 percent from the previous year. The sales manager of your company has identified only one potential client, who has received several quotes for 10,000 new PCs. According to the sales manager, the client is willing to pay $650 each for 10,000 new PCs. Your production line is currently idle, so you can easily produce 10,000 units. The accounting department has provided you with the following information about the unit (or average) cost of producing three potential quantities of PCs (table below). Based on this information, should accept the offer to produce 10,000 PCs at $650 each? Explain.
|
10,000 PCs |
15,000 PCs |
20,000 PCs |
| Materials (PC Components) |
$500 |
$500 |
$500 |
| Depreciation |
$200 |
$150 |
$100 |
| Labor |
$100 |
$100 |
$100 |
|
|
|
|
| Total Unit Cost |
$800 |
$750 |
$700 |