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comm 354 sample midterm solution

# 33 per month this leaves 33333 for the other

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Unformatted text preview: pacity is 10,000 – 8,900 demand = 1,100 available Approach one: Benefit #2,000 more units @ (220 - \$195.47) = 49,060 Lose** 900 existing @ (\$240 – 195.47) = 40,077 NET BENEFIT \$8,983 In determining the opportunity costs it is critical to consider the customer size. For example if 900 units are lost, then where will this 900 come from? Customer profile indicates that small is 800 and the largest is 2,000, thus the other customers average about 1,500 units per year. (8,900 – 800 – 2,000 = 6,100 / 6- 2 = about 1,525 per customer) Approach Two: Change in Revenue plus 2,000 x \$220 440,000 Minus 900 x \$240 (216,000) Change in costs (10,000 – 8,900)(195.47) (215,017) NET BENEFIT 8,983 What other issues would you consider important prior to accepting or rejecting this order Opportunity costs could be greater based on the average size Schedule issues calculation: 2,000 / 4 = 500 per month during Corte’s busy season Production capacity is 10,000 / 12 833.33 per month This leaves 333.33 for the other customers who were normally ordering 741 per month (8,900 / 12) Loyalty of existing customers Will current customers demand price reduction (8,000 @ (240- 220) this is \$160,000 which is huge compared to the benefit of this deal! Capacity: no room for growth of existing base Capacity: operating at 100% will this cause extra costs? No room for error as demand of 10,000 is exactly the capacity Special order: is this one time? Fut...
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