Guilford Packaging Company is a leading manufacturer of cardboard boxes and other product packaging solutions. One of the company’s major product lines is custom-printed cake boxes that are sold to some of the country’s bestknown bakeries at a price of $0.50 per box. To maintain its high-quality image, Guilford uses a thick premium coated paper for all of its cake boxes. Based on annual production of 1,000,000 boxes, Guilford’s cost for producing a box is as follows:
Ink ............. 0.04
Direct labor .......... 0.05
Variable overhead ..... 0.08
Fixed overhead ....... 0.10
Total cost per box ...... $0.42
Andrea Borden, a recent graduate of the Culinary Institute of America, is opening a new bakery in her hometown. She recently contacted Brad Lail, Guilford's top salesperson, about purchasing cake boxes for her new store. Brad described Guilford's boxes, emphasizing the high-quality paper and the unique printing process the company uses. Andrea is looking for ways to lower her operating costs, so after hearing Brad describe Guilford's boxes, she told him that all she needed was a simple, unprinted box. Andrea also told Brad that she needs 10,000 boxes and is willing to pay $0.25 per box.
a. Based on Andrea's offer of $0.25 per box for an unprinted box, should Guilford accept Andrea's order? Guildford currently has excess production capacity and can easily accommodate Andrea's order in the production schedule.
b. Since Andrea wants a simple box, Brad is exploring using a lighter-weight paper for her boxes. He has found a suitable paper that will cost $0.10 per box. If Guilford uses this lighter-weight paper for Andrea's boxes, should the company accept Andrea's order at a price of $0.25 per box? Guildford currently has excess production capacity and can easily accommodate Andrea's order in the production schedule.
c. After visiting with Andrea, Brad received a fax from one of London's top bakeries. The bakery's normal box supplier suffered some fi re damage and is unable to ship the bakery's order of 10,000 boxes this month. The bakery's owner is asking if Guilford can fill a onetime rush order of 10,000 boxes printed with the bakery's logo. The bakery is willing to pay a 10% price premium to expedite the order. If Guilford accepts the order, it will incur $800 in export taxes and shipping. Should Guilford accept the London bakery's offer?
d. What qualitative issues should Guilford consider as it evaluates both Andrea's order and the London bakery's order? Are these issues different for the two orders?