Assume that a company with 100 000 Units capacity, in total, is currently producing and selling...

 

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Assume that a company with 100 000 Units capacity, in total, is currently producing and selling only 90 000 Units of products each year at regular price of 2$. Descriptiobs Sales (90 000 Units) Variable Cost CM Fixed Cost Net operating income Total 180,000 90,000 90,000 45,000 45,000 Per Unit 2 1 1 0.5 0.5 The company often receive a short-term special order for its product at lower price than usual. In normal times the company. may refuses such an order because it will yeild a stistisfactory profit. If Times are bad,however, such an order should be. accepted if the incremental revenue obtained from it exceeds. the incremental costs involved. This approached is most appropriate under the following conditions: (1) When operating is in a distress situation, (2) When there is idle capacity, (3) when companies faced with sharp competition. The company has just received an order that calls for 10 000 units at $1.2 for a total of $10 000. The acceptance of the order will not affected regular sales. As the special order price ($1.2) is less than the unit's cost $1.5 (1.0 +.05) should the company accept the order? Assume that a company with 100 000 Units capacity, in total, is currently producing and selling only 90 000 Units of products each year at regular price of 2$. Descriptiobs Sales (90 000 Units) Variable Cost CM Fixed Cost Net operating income Total 180,000 90,000 90,000 45,000 45,000 Per Unit 2 1 1 0.5 0.5 The company often receive a short-term special order for its product at lower price than usual. In normal times the company. may refuses such an order because it will yeild a stistisfactory profit. If Times are bad,however, such an order should be. accepted if the incremental revenue obtained from it exceeds. the incremental costs involved. This approached is most appropriate under the following conditions: (1) When operating is in a distress situation, (2) When there is idle capacity, (3) when companies faced with sharp competition. The company has just received an order that calls for 10 000 units at $1.2 for a total of $10 000. The acceptance of the order will not affected regular sales. As the special order price ($1.2) is less than the unit's cost $1.5 (1.0 +.05) should the company accept the order?

Answer rating: 100% (QA)

To determine whether the company should accept the special order for 10000 units at 12 each we need to perform a differential analysis to compare the incremental revenue with the incremental costs inv... View the full answer