Problem - Consider the following information, prepared based on a monthly capacity of 50,000 units:
Category Cost per Unit
Variable manufacturing costs $12.00
Fixed manufacturing costs $1.00
Variable marketing costs $3.00
Fixed marketing costs $2.00
Capacity cannot be added in the short run and the firm currently sells the product for $20 per unit.
Consider each of these scenarios independent of each other.
a) The company is currently producing 50,000 units per month. A potential customer has contacted the firm and offered to purchase 10,000 units this month only. The customer is willing to pay $18 per unit. Since the potential customer approached the firm, there will be no variable marketing costs incurred. Should the company accept the special order? Why or why not? Be specific.
b) The company is currently producing 40,000 units per month. A potential customer has contacted the firm and offered to purchase 10,000 units this month only. Since the potential customer approached the firm, there will be no variable marketing costs incurred. What is the minimum amount that the firm should be willing to accept for this order?