Question
Gyro Gear Company produces a special gear used in automatic transmissions. Each gear sells for $28, and the company sells approximately 500,000 gears each year.
Gyro Gear Company produces a special gear used in automatic transmissions. Each gear sells for $28, and the company sells approximately 500,000 gears each year. Unit cost data for the year are presented below:
DM $6
DL $5
Other costs:
Variable Fixed
Manufacturing $2 $7
Distribution $4 $3
Gyro has received an offer from an international manufacturer to purchase 25,000 gears. They have offered a price of $20 per gear. Domestic sales would be unaffected by this transaction. If the offer is accepted, variable distribution costs will increase $1.50 per gear for insurance, shipping, and import duties. Prepare an incremental analysis for Gyro and indicate your decision. What is the minimum price you would accept on this offer?
Please be very specific with this answer, so that I can understand it. Thank you.
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