Project #20700 - Budgeting

 

Herrestad Company receives an offer to make a new product, called C, for a new customer. The customer wants to buy 1,000 units. Product C has the same cost structure as product B with three exceptions. The new customer is only willing to pay $150 per unit, direct materials costs will decrease by $12 per unit and Herrestad does not have to incur any variable selling and administrative expenses.

 

  • Make a list of the expenses and amounts that are relevant for this decision. How much with the sale of this product contribute to the profitability of Herrestad?

  • What if the company only pays $140 per unit? How does this change the contribution towards profitability?

  • If you were the manager, would you accept this order? What considerations, other than financial would enter into your decision?

 

Subject Business
Due By (Pacific Time) 01/12/2014 12:00 am
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