Question
Macro Enterprises has the capacity to produce 10,000 chips a month, and currently makes and sells 9,000 chips a month. Chips normally sell for $6
Macro Enterprises has the capacity to produce 10,000 chips a month, and currently makes and sells 9,000 chips a month. Chips normally sell for $6 each, and cost an average of $5 to make, including fixed costs. The monthly fixed costs are $18,000. Wolf has offered to buy 1,500 chips (all or nothing) for $4 each. The accountant has determined that the excess production (beyond capacity) can be accommodated in the short term by incurring an incremental (fixed) cost of $800. Should Wolf's offer be accepted? Why?
a. no, because it will lose $1 per unit
b. no, because the opportunity costs are less than the gains
c. yes, because the contribution from the sale exceeds the incremental costs
d. yes, because it makes $1 per unit in the short run
e. unable to determine
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