Export order Delta Screens Corporation is currently operating at of capacity in producing screens annually. Delta recently received an offer from a company in Germany to purchase screens at $ per unit.
Export order Delta Screens Corporation is currently operating at of
capacity in producing screens annually. Delta recently received an offer
from a company in Germany to purchase screens at $ per unit. Delta
has not previously sold products in Germany. Budgeted production costs for
and screens follow:
Delta has been selling its product at a markup of above full cost.
Delta's marketing manager believes that although the price offered by the
German customer is lower than current prices, Delta should accept the order
to gain a foothold in the German market. The production manager, however,
believes that Delta should reject the order because the unit cost is higher than
the price offered.
Required
a Explain what causes the apparent decrease in cost from $ per unit to $ per unit when
production increases from to units.
b If the president of Delta Screens Corporation calls on you to resolve the difference in opinions,
what will you recommend? Why?units