Question

A company has been approached by a customer with an offer to buy 10,000 units of product but the customer wants a 25% discount off the normal selling price of $12. Unit-related cost of goods sold is $4.80 while unit-related selling costs are $1.20. To fill the customer’s order, one additional production run at a cost of $8,000 will be needed. In addition, an additional purchase order will be required at a cost of $500 and shipping to the customer will be $600. The company has the capacity to fill the customer’s order without interrupting normal sales. Should the company accept the order?

The company has the capacity to make 50,000 units. Normally they only make 45,000. Should they accept the offer now?

Answer 1

Sale (10000*12*75%)	$90,000
Less: Cost of goods sold (10000*4.80)	48,000
Selling cost (10000*1.20)	12,000
Production run cost	8,000
Purchase order cost	500
Shipping cost	600
Financial Advantage(disadvantage)	$20,900

Company should accept the order.