. Evaluating a New Sales Segment. Huang Automotive in Taiwan is presently operating at 75 percent of practical capacity and producing about 200,000 units annually of a power steering system component. Huang recently received an offer from a Korean truck manufacturer to purchase 40,000 components at NT\$225 (new Taiwanese dollars) per unit. Flexible budgets for production of 200,000 and 250,000 units are:

Peter Wu, vice-president of sales, thinks accepting the order will get the company's "foot in the door" of an expanding international market, even if the company loses a little on this order.
T. J. Chan, vice-president of engineering, feels that any new market should first show its profitability and that this offer is below last year's cost per unit of NT\$240. "This guarantees a loss on the order," he says.
Lili Zhang, treasurer, has made a quick computation which indicates that accepting the order will actually increase dollars of gross margin.
\section*{Required:}
1. Estimate Huang's variable cost per unit.

2. Show how Mr. Chan and Ms. Zhang are analyzing the situation. Using the given facts, what does the incremental analysis of the Korean sale show?
3. What major nonquantitative factors might affect the decision to accept or reject the special order?

Transcribed Image Text:

Direct materials.. Direct labor.. Factory overhead. Total costs.. Cost per unit. 200,000 Units NT$ 18,000,000 6,000,000 24,000,000 250,000 Units NT$ 22,500,000 7,500,000 27,000,000 NT$48,000,000 NT$ 57,000,000 NTS 240 NT$ 228