One of Phoenix Computer's products is WizardCard. The company currently produces and sells 30,000 WizardCards per month, although it has plant capacity to produce 50,000 units per month. At the production level of 30,000 units per month, WizardCards' average manufacturing cost per unit is $45, consisting of $15 variable costs and $30 fixed costs. Phoenix sells WizardCards to retail stores for $90 each. Computer Marketing Corp. has offered to purchase 10,000 WizardCards per month at a reduced price of $70. Phoenix can manufacture these additional units with no change in fixed manufacturing costs.

1. 1 Does this make sense for Phoenix? Do an incremental analysis and justify your decision
2. 2 After signing the order, Phoenix Computer acknowledges that the printing of the Computer Marketing Corp. logo results in additional variable manufacturing costs of $5 per part. On top of that, they need to rent a special printing machine that costs $300,000 for all the production time. Since the contract has already been signed, the agreed sales price of $70 cannot be changed per piece. How does this affect Phoenix Computers' operating income?

Answer rating: 100% (QA)

1 To determine if it makes sense for Phoenix Computer to accept the offer from Computer Marketing Co... View the full answer