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Taylor, Inc. manufactures bath and beauty products such as soaps, skin creams, lotions, and other products primarily for people with dry and sensitive skin. It
Taylor, Inc. manufactures bath and beauty products such as soaps, skin creams, lotions, and other products primarily for people with dry and sensitive skin. It has just introduced a new line of product that removes the spotting and wrinkling in skin associated with aging. It sells these products in pharmacies and department stores at prices slightly higher than those of other brands because of Taylor's excellent reputation for quality and effectiveness.
Taylor currently has very low utilization of plant capacity. Two years ago, in anticipation of rapid growth, the company opened a new large manufacturing plant, which has yet to be utilized more than percent. Partly for this reason, Taylor has sought new partners and was able, with the help of financial analysts, to locate suitable business partners. The first potential partner identified in this search was a large supermarket chain, ACME, which is interested in the partnership because it wants Taylor to manufacture an age cream to sell in its stores. The product would be essentially the same as the Taylor product but would be packaged in the ACME brand name. The agreement would pay Taylor $ per unit and would allow ACME a limited right to advertise the product as manufactured for ACME by Taylor. Taylor's CFO has made some calculations and has determined that the direct materials, direct labor and other variable costs needed for the ACME order would be about $ per unit as compared to the full cost of $materials labor, and overhead for the equivalent Taylor product.
Should Taylor accept the proposal from ACME? Why or why not?
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