Kaizen Inc. budgeted to produce 10,000 widgets during 2010. Kaizen has capacity to produce 12,000 units. Fixed factory overhead is allocated to production. The following estimated costs were provided:
Direct material ($7/unit) ..................................................... $ 70,000
Direct labor ($15/hr. × 2 hrs./unit) ...................................... 300,000
Variable manufacturing overhead ($3/unit) ......................... 30,000
Fixed factory overhead costs ($5/unit) ................................. 50,000
Total ..................................................................................... $450,000
Cost per unit = $45
Instructions
Answer each of the following independent questions:
1. Kaizen received an order for 1,000 units from a new customer in a country in which Kaizen has never done business. This customer has offered $43 per widget. Should Kaizen accept the order?
2. Kaizen received an offer from another company to manufacture the same quality widgets for $39. Should Kaizen let someone else manufacture all 10,000 widgets and focus only on distribution?