Accept an Order at a Special Price

Accept an Order at a Special Price - Accept an Order at a...

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Accept an Order at a Special Price Sometimes, a company has an opportunity to obtain additional business if it is willing to make a major price concession to a specific customer. To illustrate, assume that Sunbelt Company produces 100,000 automatic blenders per month, which is 80% of plant capacity. Variable manufacturing costs are $8 per unit. Fixed manufacturing costs are $400,000, or $4 per unit. The blenders are normally sold directly to retailers at $20 each. Sunbelt has an offer from Mexico Co. (a foreign wholesaler) to purchase an additional 2,000 blenders at $11 per unit. Acceptance of the offer would not affect normal sales of the product, and the additional units can be manufactured without increasing plant capacity. What should management do? Helpful Hint This is a good example of different costs for different purposes. In the long-run all costs are relevant, but for this decision only costs that change are relevant. If management makes its decision on the basis of the total cost per unit of $12 ($8 + $4), the
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Accept an Order at a Special Price - Accept an Order at a...

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