Question: The Gamecock Corporation is working at full production capacity

The Gamecock Corporation is working at full production capacity production 10,000 units of the unique product, R250. Manufacturing cost per unit for R250 is as follows:
Direct Materials ......... $ 2
Direct manufacturing labor .... 3
Manufacturing overhead ..... 5
Total manufacturing cost ..... $ 10

Manufacturing overhead cost per unit is based on variable cost per unit of $2 and fixed costs of $30,000 (at full capacity of 10,000 units). Marketing cost per unit, all variable is $4. And the selling price is $ 20.
A customer, the Lauderdale Company, has asked Gamecock to produce 2,000 units of R250-1, a modification of R250. R250-1 would require the same manufacturing processes as R250. Lauderdale has offered to pay Gamecock $15 for a unit of R250-1 plus half of the marketing cost per unit.

(a) What is the company cost to Gamecock of producing the 2,000 units of R250-1?
(b) The Gator Corporations has offered to produce 2,000 units of R250 for Gamecock so that Gator offer Gamecock would manufacture 8,000 units of R250 and 2,000 units of R250-1 and purchase 2,000 units of R250. On the basis of financial considerations alone, should Gamecock accept the Gator offer? Show your calculations.
(c) Suppose Gamecock had been working at less than full capacity, producing 8,000 units of R250 at the time the Lauderdale offer was made. Calculate the minimum price Gamecock should accept for R250-1 under these conditions.

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  • CreatedAugust 26, 2013
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