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    Best Unit Price of Surge Protectors

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    A company makes surge protectors that are used to protect equipment in electrical storms. The costs associated with making a surge protector are shown below:
    Materials $7
    Labor $12
    Overhead $3

    Batch Level Set-up $4000 per batch

    Product level
    Engineering $50,000 per year
    Advertising $120,000 per year

    The company normally makes and sells 10,000 surge protectors per year which are made in batches containing a 1,000 units. Derrick has an opportunity to sell 1000 protectors at a special order price of $24 per unit. Ignoring qualitative factors, the company should
    (1)except the offer because it would increase profitability by $2,000 or (2)to reject the offer because it would decrease profitability by $2,000 or(3)except the offer because it would increase revenue by $240,000 or (4)reject the offer because it would decrease profitability by $4,000.

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    Solution Preview

    Total Cost of Production: Batch Costs + per unit cost x number of units + product level costs

    (10,000 / 1000) x 4000 + 22 x ...

    Solution Summary

    The solution gives different levels of profitability under decision making in different scenarios.