Question
Orchid is a personal products company manufacturing shampoo, conditioner, and liquid soap selling 2 million bottles of shampoo under Orchid brand. The operations director wishes
Orchid is a personal products company manufacturing shampoo, conditioner, and liquid soap selling 2 million bottles of shampoo under Orchid brand. The operations director wishes to use the spare capacity on the manufacturing line by producing a shampoo for a supermarket chain under the supermarkets own label. The operations director confirms that the contract would be for 450,000 bottles and be sold at a 20% discount on current selling prices 1.50 per bottle. Direct costs would be the same (0.6 per bottle), but instead of variable distribution costs (0.2 per bottle) there would be a bulk delivery charge of 80,000. Allocated costs are 0.45 per bottle. Assess the impact of agreeing to the contract. What other factors should be taken into account?
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