Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A firm produces one million units per year.The overhead costs (building maintenance, CEO salary, head office personnel, etc.) come to $1 million per year.The direct

A firm produces one million units per year.The overhead costs (building maintenance, CEO salary, head office personnel, etc.) come to $1 million per year.The direct costs (raw materials and blue-collar labor) are $1 per unit, so $1 million per year.This means that the total costs for the firm are $2 million, and the average cost per unit of output is $2.The firm sells the units at a price of $2.20 per unit, so it makes $200 thousand per year in profit.The director of marketing has just received an order for an addition 1 million units per year at a price of $1.30 per unit.The firm could satisfy the order by adding a second shift, so no additional overhead.The firm would have to double the amount of raw materials and blue-collar labor.Should the firm accept the order?Please explain.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Economics questions

Question

What are considerations when migrating to the cloud?

Answered: 1 week ago

Question

Discuss Ms. Lincolns level of commitment to occupational safety.

Answered: 1 week ago