Question

Ivanhoe Packaging Company is a leading manufacturer of cardboard boxes and other product packaging solutions. One of the company’s major product lines is custom-printed cake boxes that are sold to some of the country’s best known bakeries at a price of $0.50 per box. To maintain its high-quality image, Ivanhoe uses a thick premium coated paper for all of its cake boxes. Based on annual production of 1,000,000 boxes, Ivanhoe’s cost for producing a box is as follows:

Paper $0.16
Ink 0.05
Direct labor 0.05
Variable overhead 0.07
Fixed overhead 0.10
   Total cost per box $0.43


Andrea Borden, a recent graduate of the Culinary Institute of America, is opening a new bakery in her hometown. She recently contacted Brad Lail, Ivanhoe’s top salesperson, about purchasing cake boxes for her new store. Brad described Ivanhoe’s boxes, emphasizing the high-quality paper and the unique printing process the company uses. Andrea is looking for ways to lower her operating costs, so after hearing Brad describe Ivanhoe’s boxes, she told him that all she needed was a simple, unprinted box. Andrea also told Brad that she needs 9,600 boxes and is willing to pay $0.26 per box.

(a) Based on Andreas offer of $0.26 per box for an unprinted box, should Ivanhoe accept Andreas order? Ivanhoe currently ha

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a) Ivanhoe should not accept the order working note: Selling price Paper Direct labor Variable overhead Total variable Overhe

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