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Waterways mass-produces a special clip that is used to install the irrigation pipes. Because of a limited supply of the raw material used in the
Waterways mass-produces a special clip that is used to install the irrigation pipes. Because of a limited supply of the raw material used in the manufacturing process, very few other companies can manufacture this clip. These units normally sell for $ 4.08 per unit. Waterways sells about 33,900 of the units each year. A company in British Columbia that has been unable to secure enough material to produce the volume of units demanded by its customers has offered to pay $ 3.10 each for 17,100 units. This is just $ 0.40 above the variable cost of the unit. In addition, to complete production, it would require temporarily adding another shift to the production line, which in turn would increase variable manufacturing costs by $ 0.40 per unit. However, because the units are going to one company, selling costs would be reduced by $ 0.15 per unit. An Vaughn company has also asked for a special order. It is willing to pay $ 3.40 per unit but only needs 11,300 units. Waterways cannot manufacture this order without adding an extra shift. Special packaging required will cost $ 0.21 per unit. Currently, Waterways has enough raw materials to produce 51,000 units. Determine the consequences of Waterways agreeing to provide the 17,100 units to the B.C. company. (Round cost of the unit and contribution margin per unit to 2 decimal places, e.g. 2.75.) Cost of each unit $ Contribution margin per unit ta $ Increase (decrease) in income Would this be a wise special order to accept? a
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