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galina1969 [7]
3 years ago
12

Micro Enterprises has the capacity to produce 10,000 widgets a month, and currently makes and sells 9,000 widgets a month. Widge

ts normally sell for $6 each, and cost an average of $5 to make, including fixed costs. The monthly fixed costs are $18,000. Coyote Corp. has offered to buy 1,000 widgets at $4 each. Assuming the same story, but Coyote's offer is for 1,500 units (all or nothing), should the offer be accepted?
Business
1 answer:
balu736 [363]3 years ago
6 0

Answer:

The order for 1,500 at $4 should be rejected. It will imply omre work for no extra income.

Explanation:

First, we need to check for the cost structure of Micro Enterprises

9,000 x $5 average cost = 45,000 total cost

total cost = fixed cost + variable cost

45,000 = 18,000 + 9,000 x variable cost per unit

(45,000  - 18,000) / 9,000 = variable per unit

variable per unit = 3

Now we calculate the the special order

<em>sales revenue for the proposed deal:</em>  1,500 x 4 = 6,000

<em>variable cost for the widget:</em>                 1,500 x 3 = (4,500)

<u>opportunity cost:</u>

we resing the contribution for 500 units in the local marke

this units selling price is $6 and their cost is the same $3

                   500 x (6  -  3 )  =                                     (1,500)

                             net differencial analysis                      0

It should be rejected. as it would not modify the net income

<u></u>

<u>We could prove this by building the incomefor each scenario</u>

<u></u>

<u>if not accepted:</u>

9000 x ( 6 - 3 ) -18,000= 9,000

<u>if accepted:</u>

8500 x (6-3) + 1,500 x (4-3) - 18,000 = 9,000

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