Problem
Part I
Chris is the owner of Chris' Computers, a local shop that assembles and sells gaming computers online. Business has been going very well, although Chris is concerned that the people he hires to assemble computers from component parts are not fully employed. He estimates that his business could easily assemble and sell another 100 computers a month. Whether he does or not, Chris pays his two technicians who assemble the computers $3,000/month each as a flat salary.
Chris is currently selling 900 computers a month for $1,500 each. Variable costs for each computer sold is provided below:
|
Item
|
Unit cost
|
|
Case
|
$60
|
|
CPU
|
$220
|
|
RAM
|
$150
|
|
Graphics
|
$500
|
|
LED lights
|
$80
|
|
Variable overhead
|
$12
|
i. What is the contribution margin for each computer Chris sells?
Part II
Chris is approached by a regular customer of his who wants to negotiate a special order for 70 extra computers to outfit a gaming cafe business that the customer is starting. However, the customer wants a special price and is not willing to pay more than $1,000 per computer.
Chris is interested, as he has the capacity to fill the order. However, he feels that he needs to trim his own costs first. Chris asks his componentary supplier for a 50% discount on the additional 70 CPU and RAM components.
i. If Chris receives the requested discount and accepts the special order of 70 computers at $1,000 each, what will be his profit for the month?
ii. If Chris' supplier only offers a 5% discount on the additional CPU and RAM components, should Chris accept the special order? Explain your answer and support it with calculations.