Assignment:
The Wolverine Corporation
Opportunity costs. The Wolverine Corporation is working at full production capacity producing 10,000 units of a unique product Rosebo. Manufacturing cost per unit for Rosebo is as follows:
Manufacturing overhead cost per unit is based on variable cost per unit of $2 and fixed costs of $30,000 full capacity of 10,000 units). Marketing cost per unit all variable, is $4, and the selling price is $20.
A customer, the Miami Company, has asked Wolverine to produce 2,000 units of Orangebo, a modification of Rosebo. Orangebo would require the same manufacturing processes as Rosebo. Miami has offered to pay Wolverine $15 for a unit of Orangebo plus half of the marketing cost per unit
1. What is the opportunity cost to Wolverine of producing the 2,000 units of Orangebo? (Assume that no overtime is worked.)
2. The Buckeye Corporation has offered to produce 2,000 units of Rosebo for Wolverine so that Wolverine may accept the Miami offer That is, if Wolverine accepts the Buckeye offer, Wolverine would manufacture 8,000 units of Rosebo and 2,000 units of Orangebo and purchase 2,000 units of Rosebo from Buckeye. Buckeye would charge Wolverine $14 per unit to manufacture Rosebo. On the basis of financial considerations alone, should Wolverine accept the Buckeye offer? Show your calculations.
3. Suppose Wolverine had been working at less than full capacity, producing 8,000 units of Rosebo at the time the Miami offer was made. Calculate the minimum price Wolverine should accept for Orangebo under these conditions. (Ignore the previous $15 sellingprice.)