Graham’s Glassworks makes glass flanges for scientific use. Materials cost $1 per flange, and the glass blowers are paid a wage rate of $20 per hour. A glass blower blows 10 flanges per hour. Fixed manufacturing costs for flanges are $20,000 per period. Period (non-manufacturing) costs associated with flanges are $10,000 per period, and are fixed.
1. Fred’s Flasks sells flanges for $8.25 each. Can Graham sell below Fred’s price and still make a profit on the flanges? Assume Graham produces and sells 5,000 flanges this period.
2. How would your answer to requirement 2 differ if Graham’s Glassworks made and sold 10,000 flanges this period? Why? What does this indicate about the use of unit cost in decision making?