The Buffalo Corporation is working at full production capacity producing 11,500 units of a unique product,

Everlast. Manufacturing cost per unit for Everlast is:

Direct materials	$8
Direct manufacturing labor	4
Manufacturing overhead	9
Total manufacturing cost	$21

Manufacturing overhead cost per unit is based on variable cost per unit of $6 and fixed costs of $34,500

(at full capacity of 11,500 units). Marketing cost per unit, all variable, is $10, and the selling price is $42.

A customer, the Apex Company, has asked Buffalo to produce 3,000 units of Stronglast, a modification of

Everlast. Stronglast would require the same manufacturing processes as Everlast. Apex has offered to pay Buffalo $35 for a unit of Stronglast and share half of the marketing cost per unit.

REQUIRED

1.	Determine the formula for calculating the opportunity cost, then calculate the opportunity cost of producing the 3,000 units of Stronglast.(Assume that no overtime is worked.)
2.	The Chesapeake Corporation has offered to produce 3,000 units of Everlast for Buffalo so that Buffalo may accept theApex offer. That is, if Buffalo accepts the Chesapeake offer, Buffalo would manufacture 8,500 units of Everlast and 3,000 units of Stronglast and purchase 3,000 units of Everlast from Chesapeake. Chesapeake would charge Buffalo $29 per unit to manufacture Everlast. On the basis of financial considerations alone, should Buffalo accept the Chesapeake offer? Show your calculations.
3.	Suppose Buffalo had been working at less than full capacity, producing 8,500 units of Everlast at the time the Apex offer was made. Calculate the minimum price Buffalo should accept for Stronglast under these conditions. (Ignore the previous $35 selling price.)