Answer:
Unless the capacity is expanded or some of the production gets outsource, the offer is not convenient.
Explanation:
Giving the following information:
Currently, Gary sells 10,000 shirts at $60 each with the capacity to produce 11,000 shirts. Gary is considering a special order for 1,800 shirts for $40.
Gary has the following costs:
Unit Costs $200,000
Facility Costs $140,000
If Gary accepts the special order, they will incur an additional $2 per shirt in foreign currency transaction costs.
Because it is a special offer and there is unused capacity, we will not have into account the fixed costs.
variable cost per unit= (200,000/10,000) + 2= $22
Effect on income= (40 - 22)*1,800= $32,400
We have to take into account the loss of not selling 1,000 units.
Effect on income= 1,000*40= $40,000
Total effect= 32,400 - 40,000= $7,600
Unless the capacity is expanded or some of the production gets outsource, the offer is not convenient.
