Problem:
You are the GM of a firm that manufactures PC's. Demand for them has dropped 50%, thanks to a soft economy. The sales manager has identified only one potential client, who has received several quotes for 10000 new PC's. According to the sales manager, the client is willing to pay $650 each of the 10000. Your production line is idle, so you can make them easily. The accounting department provided you with the following info about the unit(average) cost of producing 3 potential quantities of PC's:
10000 PC's 15000 PC's 20000 PC's
Materials 500 500 500
Depreciation 200 150 100
Labor 100 100 100
Total Unit Cost 800 750 700
Based on this info, should you accept the offer to produce 10000 at $650? Explain.