Evaluate his argument that it does not make sense to sell 4,000 coolers to the petroleum company since the offer price of 1200 is below the cost of 1585
PART I FINANCE FUNDAMENTALS THE COPIER PROBLEM The firm recently has received an offer from a very large petroleum corporation to purchase ao ocopiersatsi 20aa unit which s20 percent under the usual price of $1.500. On one hand, the offer is quite welcome. Dover's copier opera- tion is the only area of the firm that experienced a loss during the last three months. Copier sales are down and significant excess capacity exists in this part of the firm's operation. In fact,Dover could fill the petroleum company's order o strain on its production facilities. The company's chief accountant, imothy Wiles, is "the other hand." Wiles is adamant that accepting the offer is a "losing proposition." He cites as evidence the most recent income statement of it the copier operation. (See Exhibit 1.) He notes that unit sales price has beenecosm $1,500, and the information in Exhibitindi Sce cates that unit or average cost is $1,585. Wiles'argument is that to sell these copiers at a price of $1,200 will only "put the copier operation even more in the red since this price is well below the operation's average cost Mark Thatcher is a finance officer and is skeptical of Wiles' argument. ftra Thatcher believes that what is needed is an estimate of the marginal or incre- mental cost incurred if 4,000 additional copiers are produced. He is not con- vinced that Wites numbers capture such costs. PART I FINANCE FUNDAMENTALS THE COPIER PROBLEM The firm recently has received an offer from a very large petroleum corporation to purchase ao ocopiersatsi 20aa unit which s20 percent under the usual price of $1.500. On one hand, the offer is quite welcome. Dover's copier opera- tion is the only area of the firm that experienced a loss during the last three months. Copier sales are down and significant excess capacity exists in this part of the firm's operation. In fact,Dover could fill the petroleum company's order o strain on its production facilities. The company's chief accountant, imothy Wiles, is "the other hand." Wiles is adamant that accepting the offer is a "losing proposition." He cites as evidence the most recent income statement of it the copier operation. (See Exhibit 1.) He notes that unit sales price has beenecosm $1,500, and the information in Exhibitindi Sce cates that unit or average cost is $1,585. Wiles'argument is that to sell these copiers at a price of $1,200 will only "put the copier operation even more in the red since this price is well below the operation's average cost Mark Thatcher is a finance officer and is skeptical of Wiles' argument. ftra Thatcher believes that what is needed is an estimate of the marginal or incre- mental cost incurred if 4,000 additional copiers are produced. He is not con- vinced that Wites numbers capture such costs
