You are a 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 the 10,000 units. The accounting department has provided you with the following information about unit (or average) cost of producing three potential quantities of PCs. Based on the information provided, what is your recommendation? 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