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:
Unit-Level
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 Summary
The solution gives different levels of profitability under decision making in different scenarios.
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Total Cost of Production: Batch Costs + per unit cost x number of units + product level costs
(10,000 / 1000) x 4000 + 22 x ...
Education
- BE, Bangalore University, India
- MS, University of Wisconsin-Madison
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