Question
A quarry pot factory has a normal monthly capacity to manufacture 7,000 units, the current demand for its pots has been declining in recent months,
A quarry pot factory has a normal monthly capacity to manufacture 7,000 units, the current demand for its pots has been declining in recent months, so it currently produces and sells only 6,100 units at a price of $ 490 each, the costs you currently have for each unit are:
Fixed manufacturing costs $ 80
Variable manufacturing costs $ 340
Production unit cost $ 420
It also has a variable operating expense of $ 55 per unit and fixed operating expenses of $ 250,000 per month.
He received an order from Vivero Edn in which he offers to buy him a batch of 820 pots at a price of $ 440 each, if he accepts the order, the fixed costs of production would remain unchanged. Freight expenses would be paid by the nursery.
It asks:
1. Determine what information would be irrelevant to your decision making.
2. Determine if you should accept the order. Justify your answer with a marginal analysis.
3. Now suppose the order was for 1000 pots. Would you accept it? Perform the necessary calculations to support your answer.
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