Yoshi Company manufactures three different models of colour plasma screens: PS1, PS2, and PS3. Data on the three
models is presented below:
Unit variable cost
Annual production units
Machine-hours per unit
Avoidable fixed costs if product line is eliminated
Yoshi's production capacity is 90,000 machine-hours per year.
Chiyo Company has offered to purchase 4,800 units of a simpler version of PS3 for $435. Yoshi estimates that this version of the PS3 would result in variable costs of $305 per unit to manufacture and 7 machine hours per unit, plus an additional fixed cost of $62,000 for a new assembly machine. The order has to be either taken in full or rejected totally. If Yoshi takes the special order, it will not produce and sell PS3 to compete with Chiyo.Should Yoshi accept the special order from Chiyo? What is the incremental operating income/loss for accepting this order?
Steps are: Check whether machine hours are key factor. If yes. Then calculate cont. Per hour per... View the full answer