Question
An industrial drill factory has a normal monthly capacity to manufacture 6,500 units, currently produces and sells only 5,100 units at a price of $
An industrial drill factory has a normal monthly capacity to manufacture 6,500 units, currently produces and sells only 5,100 units at a price of $ 850 each, and its monthly costs are:
Total manufacturing fixed costs $ 850,000
Variable unit production cost $ 450
Total fixed administration expenses $ 580,000
Variable selling expense per unit $ 30
They received a request from a chain of hardware stores for 1,800 drills, the chain offers to buy the drills from you at a price of $ 570 each. The drill will be branded by the hardware store chain and would require a small design adjustment that would increase variable costs of production by 10%, in addition to shipping costs of the $ 13,500 order. Variable selling expenses would not be included in the order.
It asks:
Prepare a marginal analysis to determine whether or not to accept the special request.
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