There is great demand for the Molly Doll that sells for $100 and is made by the Cutesy Toy Company. In fact, the demand is so great that the company can sell every doll that it manufactures. There are three operations involved in the manufacturing and shipping of this item summarized as follows: Molding Sewing Assembly and Packing Total capacity per year 12,500 units 10,000 units 17,500 units Fixed capacity costs $300,000 $200,000 $50,000 Variable costs per unit $13 per unit $25 per unit $2 per unit Unit fixed costs $30 per unit $20 per unit $5 per unit (unavoidable) based upon annual production of 10,000 units The Model Toy Company has made an offer to perform the molding process for an additional 2,000 units of the Molly Doll at $15 per unit. The Quick Thimble Sewing Company has also made an offer to sew outfits for 1,500 dolls at a cost of $35 per outfit. There is no alternative use for Cutesy's capacity at this time. Which of these offers, if any, should the Cutesy Toy Company accept? Explain.

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Lets understand the costs associated with producing a Molly Doll and then analyze whether the offers ... View the full answer