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Wilson supply produces a duffle bag that sells for $195.Although the company's production capacity is 5,000 bags per year, only 4,000 bags are currently being
Wilson supply produces a duffle bag that sells for $195.Although the company's production capacity is 5,000 bags per year, only 4,000 bags are currently being produced and sold. The production costs for 4,000 bags are as follows: Wilson's management has recently been approached by two outside firms with two separate offers. Consider these offers independently. Offer A: Target has offered to purchase 1,000 duffle bags a year as a special purchase at a price of $150 per bag. A Target logo would appear on the bag instead of the "Wilson" logo. A. Prepare an analysis that indicates whether the special order from Target should be accepted. Assume the "allocated fixed corporate costs" are unavoidable. Should Wilson accept the offer? B. Would your answer to Question A change if Target offered to purchase 1,000 duffle bags a year at a price of $130 per bag? Why or why not? Offer B: BAG Manufacturing has offered to produce 4,000 duffle bags for Wilson at a cost of $185 per bag. Wilson would no longer manufacture its own duffle bags. All of the "allocated fixed corporate costs" are avoidable if the production is outsourced to BAG. C. Prepare an analysis that indicates whether the production of duffle bags should be outsourced. Should Wilson make or buy the bags
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