Question

Manitoba Production Corporation (MPC) specializes in the manufacture of one-litre plastic bottles. The plastic moulding machines are capable of producing 100 bottles per hour. The firm estimates that the variable cost of producing a plastic bottle is 25 cents. The bottles are sold for 55 cents each.
Management has been approached by a local toy company that would like the firm to produce a molded plastic toy for it. The toy company is willing to pay $3.40 per unit for the toy. The unit variable cost to manufacture the toy will be $2.70. In addition, MPC would have to incur a cost of $24,000 to construct the mould required exclusively for this order. Because the toy uses more plastic and is of a more intricate shape than a bottle, a molding machine can produce only 40 units per hour. The customer wants 100,000 units. Assume that MPC has a total capacity of 10,000 machine hours available during the period in which the toy company wants delivery of the toys. The firm’s fixed costs, excluding the costs to construct the toy mould, during the same period will be $220,000.
REQUIRED
1. Suppose the demand for its bottles is 750,000 units, and the special toy order has to be either taken in full or rejected totally. Should MPC accept the special toy order? Explain your answer.
2. Suppose the demand for its bottles is 850,000 units, and the special toy order has to be either taken in full or rejected totally. Should MPC accept the special toy order? Explain your answer.
3. Suppose the demand for its bottles is 900,000 units, and the special toy order has to be either taken in full or rejected totally. Should MPC accept the special toy order? Explain your answer.


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  • CreatedJuly 31, 2015
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