Pear has been selling iPears (an advanced cellphone) for nearly a decade across Canada and USA. They
Question:
Pear has been selling iPears (an advanced cellphone) for nearly a decade across Canada and USA. They have been able to sell 100% of their capacity (300,000) for iPears successfully through their in-store locations and resalers. Recently, the COVID-19 pandemic has caused multiple fewer foot traffic for their instore locations. As a result, Pear has experienced a decline in sales down to 250,000 iPears, which they think may be temporary until the effects of the pandemic have ended. Pear has been approached by a wholesaler based out of Australia, Grapple, to purchase an additional 75,000 iPears with no long time commitment required. This order would not incur the regular variable selling costs as a result of the one-time purchase. Below is the cost analysis on the chairs based on 300,000 iPears which normally sell for $500 each.
Cost per chair | |
Direct Materials | $144.00 |
Direct Labour | $63.00 |
Manufacturing Overhead (40% variable) | $30.00 |
Sales Commissions | $25.00 |
Fixed Selling Variable Administration | $3.00 $22.00 |
Fixed Administration | $122.00 |
Total Costs | $409.00 |
Instructions:
Should the offer be accepted at a 40% discount on the sales price? What is the net CM difference if the offer is accepted?
Expert Answer:
i To determine if Pear should accept Grapples offer we need to calculate the net contribution margin ... View the full answer
