Gersen, Inc. budgeted 10,000 widgets for production during 2008. Gersen has capacity to produce 12,000 units. Fixed factory overhead is allocated to production. The following estimated costs were provided:
Direct material ($7/unit) ........................................... $ 70,000
Direct labor ($15/hr. × 2 hrs./unit) ........................... 300,000
Variable manufacturing overhead ($3/unit) ............ 30,000
Fixed factory overhead costs ($5/unit) .................... 50,000
Total .......................................................................... $450,000
Cost per unit = $45
Instructions
Answer each of the following independent questions:
1. Gersen received an order for 1,000 units from a new customer in a country in which Gersen has never done business. This customer has offered $43 per widget. Should Gersen accept the order
2. Gersen received an offer from another company to manufacture the same quality widgets for $39. Should Gersen let someone else manufacture all 10,000 widgets and focus only on distribution?