Extreme Tables manufactures all kinds of miniature toy tables. They are currently considering making a new line of coffee tables. A supplier has offered to supply the coffee tables of the same quality at $14 each with an assurance of continued supply. The following is the budget for Extreme Tables to make 4,000 special tables: Raw material cost $18,000 Direct wages $15,000 Production overhead costs: Variable Fixed Setup cost to start producing this type of table $12,000 $14,000 $5,000 Distribution costs: Variable Fixed $6,000 $7,500 Administrative costs: Variable Fixed $5,000 $12,500 a) Should Extreme Tables accept the supplier's offer? b) What would be the decision if the supplier offered the tables at $12 each? c) What would be the breakeven point? d) What qualitative factors should be considered? In this example we are going to assume we are only interested in the marginal (incremental) costs to produce the tables, so we can compare it to the supplier's quote. So although we could include the distribution costs and the administrative costs to calculate the total cost to make a table including all costs in order to arrive at price we would like to sell the table), we're going to simplify this scenario by assuming they are about the same whether we make the tables or we buy the tables. We're going to focus on the marginal (incremental) costs. What should we do with the "production overhead costs" and the "Setup cost to start.

Answer rating: 100% (QA)

To compare the suppliers offer with Extreme Tables manufacturing costs well focus on the marginal incremental costs of producing the tables For simpli... View the full answer