Desteur Plastics- 51 minutes Desteur Plastics Limited (DPL) manufactures a wide range of household plastic products for kitchens and bathrooms. The company's products are sold primarily to large retailers, including department stores, discount chains, and grocery chains. One of DPL's products is a line of plastic dishware that is sold prepackaged as 4place place settings. DPL sells the dishes to the retailers at $8.00 per set, and has in recent years been operating at or near the limited capacity of the equipment, which is approximately 500,000 sets per year. The retailers manage to turn around and sell the products at $14.00 per set. The cost of producing the dishes have been determined by DPL's bookkeeper as follows; Material $2.00 per set Direct labor $1.60 Factory overhead Variable $0.60 Allocated xed $0.40 Equipment depreciation $0.15 Selling, delivery and admin $0.20 Cost per set $4.95 The selling, delivery and admin costs are those that are identiable with the product, and are essentially variable. The company has had strong success in the past years, as its grown from a small operation to now operating at capacity. 5 years ago, the company was operating at 40% capacity, but has earned a strong reputation for quality and the current VP sales has built very strong relationships with retailers. Not included in the above cost are SG&A costs approximately $750k a year, which includes non- manufacturing related costs, such as rent of the sales ofce, accounting and auditing expenses, xed salaries of the VP Sales all other sales people are based on commission and are included in the above gure, communication and data charges, etc. The company's reputation has been maintained despite a fairly public lawsuit which involved a dish-set breaking while it contained a hot beverage which burnt a prominent media member in the US. A lawsuit was led which is about to be settled out of court for an amount still to be nalized, but should be between $200k to $350k. The equipment used for the dishes is old and substantially depreciated, and will have to be retired or replaced within the next two years. Its present book value is $130,000. The equipment has no other uses with DPL. A major grocery chain that is not a regular customer of DPL has approached the company and has offered to buy 700,000 sets per year for at least four years to use in special promotions. The additional sets would be identical to DPL's regular line, except that the packaging would bear the grocery chain's name and teddy bear logo. The chain proposes to buy the special sets for $5.00 per set. They would be priced in the stores at two-thirds the price of the regular line. Since DPL does not presently have the capacity to produce the additional sets, DPL would have to buy additional dish-making capacity if the company decides to accept the order. Rather than supplement the