WPC has excess production capacity and is considering the possibility of making and selling paging equipment. The following estimates are based on a production and sales volume of 1,000 pagers. Unit-level manufacturing costs are expected to be $20. Sales commissions will be established at $1 per unit. The current facility-level costs, including depreciation on manufacturing equipment , rent on the manufacturing facility ($60,000), depreciation on the administrative equipment, and other fided administrative expenses , will not be affected by the production of the pagers. The chief accountant has decided to allocate the facility-level costs to the existing product and to the new product (pagers) on the basis of the number of units of product made .
A) Assuming the pagers could be sold at a price of $40 each, should WPC make the pagers?
B) One of WPC's sales representatives receives a special offer to sell 1,500 components at a price of $65. should the offer be accepted?
C) WPC has the opportunity to purchase the component that it currently makes. The components can be purchased at a price of $76 each. Assuming the manufacturing equipment has a zero market value, should WPC buy the components?