Winder Corporation is a specialty component manufacturer with idle capacity. Management would like to use its extra capacity to generate additional profits. A potential customer has offered to buy 3,000 units of component QEA. Each unit of QEA requires 5 units of material F85 and 5 units of material E71. Data concerning these two materials follow: Material F85 is in use in many of the company's products and is routinely replenished. Material E71 is no longer used by the company in any of its normal products and existing stocks would not be replenished once they are used up.
What would be the relevant cost of the materials, in total, for purposes of determining a minimum acceptable price for the order for product QEA?

Question

Winder Corporation is a specialty component manufacturer with idle capacity. Management would like to use its extra capacity to generate additional profits. A potential customer has offered to buy 3,000 units of component QEA. Each unit of QEA requires 5 units of material F85 and 5 units of material E71. Data concerning these two materials follow:  Material F85 is in use in many of the company's products and is routinely replenished. Material E71 is no longer used by the company in any of its normal products and existing stocks would not be replenished once they are used up.
What would be the relevant cost of the materials, in total, for purposes of determining a minimum acceptable price for the order for product QEA?

Quizplus · Accepted Answer

Materials requirements for F85: 3,000 units of QEA × 9 units of F85 per unit of QEA = 15,000 units of F85
Materials requirements for E71: 3,000 units of QEA × 7 units of E71 per unit of QEA = 15,000 units of E71
 11eacbfc_c631_c979_8ffe_59acaca90f75_TB7552_00 * 15,000 units − 13,680 units = 1,320 units

Winder Corporation Is a Specialty Component Manufacturer with Idle Capacity