Cider Ltd produces a premium cider that is sold throughout its chain ofrestaurants. Thecompany is currently producing 1600 litres ofcider perday, which represents 80 per cent ofits manufacturing capacity. The cider is available to restaurant customers bythe glass, in bottles, orpackaged in six packs for take-home. The selling price ofa litre ofcider averages $10 and cost accounting records indicate the following manufacturing cost per litre ofcider.
Direct material $3.00
Direct labour $1.50
Variable overhead $1.00
Fixed overhead $2.50
Total absorption cost $8.00
Inaddition tomanufacturing costs deseribed above, Cider Ltd incurs an average cost of $1.00 per litre to distribute the cider to its restaurants.
Thrifty Ltd,a chain ofgrocery stores, is interested in selling the cider in litre jugsthroughout its stores in the Canberra area during holiday periods and hasoffered to purchase cider from Cider Ltd at a price of $8perlitre. Thrifty believes it could sell200 litres per day. IfCider Ltd agrees to sell cider to Thrifty, it estimates the average distribution cost willbe$1.50 per litre.
REQUfRED
a. Should Cider Ltd accept the offer from Thrifty? Explain your decision. b. "What non-finaneial factors need to beconsidered in making the decision?