Golf Specialties (GS), a Belgian company, manufactures a variety of golf paraphernalia, such as head covers for
Question:
GS is currently making 500 tiger head covers a week at a per unit cost of 3.50 euros, which includes both variable costs and allocated fixed costs. GS sells the tiger head covers to distributors for 4.25 euros. A distributor in Japan, Kojo Imports, wants to purchase 100 tiger head covers per week from GS and sell them in Japan. Kojo offers to pay GS 2 euros per head cover. GS has enough capacity to produce the additional 100 tiger head covers and estimates that if it accepts Kojo’s offer, the per unit cost of all 600 tiger head covers will be 3.10 euros. Assume the cost data provided (3.50 euros and 3.10 euros) are accurate estimates of GS’s costs of producing the tiger head covers. Further assume that GS’s variable cost per head cover does not vary with the number of head covers manufactured.
Required:
a. Given the data in the problem, what is GS’s weekly fixed cost of producing the tiger head covers?
b. To maximize firm value, should GS accept Kojo’s offer? Explain why or why not.
c. Besides the data provided above, what other factors should GS consider before making a decision to accept Kojo’s offer?
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Step by Step Answer:
a Given that the variable cost per head cover is 110 Euros the fixed cost per week is AC FC Q VC 310 ...View the full answer
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Related Book For 
Accounting for Decision Making and Control
ISBN: 978-0078025747
8th edition
Authors: Jerold Zimmerman
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