Question:
Sweet Products produces mint syrup used by candy and gum companies. Currently, the company has had excess capacity due to a foreign supplier entering its market. Sweet Products is currently bidding on a potential order from Red Sugar Candy for 5,000 cases of syrup. The evaluated cost of each case is $27.50, as follows: direct material, $10; direct labor, $5; and manufacturing overhead, $12.50. The overhead rate of $2.50 per direct labor dollar is based on evaluated annual overhead of $1,500,000 and estimated direct labor of $600,000, composed of $400,000 of variable costs and $1,100,000 of fixed costs. The largest fixed cost relates to depreciation of equipment and plant. Would Sweet Products bid on the Red Sugar Candy business at $20 per case?