Grant Industries, a manufacturer of electronic parts, hasrecently received an invitation to bid on a special order for25,000 units of one of its most popular products. Grant currentlymanufactures 50,000 units of this product in its Loveland, Ohio,plant. The plant is operating at 50% capacity. There will be nomarketing costs on the special order. The sales manager of Grantwants to set the bid at $14 because she is sure that Grant will getthe business at that price. Others on the executive committee ofthe firm object, saying that Grant would lose money on the specialorder at that price.
| | | | |
| Units | | 50,000 | | 75,000 |
| Manufacturing costs: | | | | |
| Direct materials | $ | 200,000 | $ | 300,000 |
| Direct labor | | 250,000 | | 375,000 |
| Factory overhead | | 350,000 | | 450,000 |
| Total manufacturing costs | $ | 800,000 | $ | 1,125,000 |
| Unit cost | $ | 16 | $ | 15 |
|
Required
2. What would be the Relevant cost per unit if the order isaccepted at the price recommended by the sales manager? What do youthink the minimum (short-term) bid price should be?
4. What would the total opportunity cost be if by accepting thespecial order the company lost sales of 6,800 units to its regularcustomers? Assume the preceding facts plus a normal selling priceof $30 per unit.
