Question

A manager of Varden Sporting Goods Company is considering accepting an order from an overseas customer. This customer has requested an order for 20,000 dozen golf balls at a price of $22 per dozen. The variable cost to manufacture a dozen golf balls is $18 per dozen. The full cost is $25 per dozen. Varden has a normal selling price of $35 per dozen. Varden's plan has just enough excess capacity on the second shift to make the overseas order.

Instructions:

What are some considerations in accepting or rejecting this order? Explain.

Note: Be sure to properly cite other sources you include.

Answer 1

The overseas order has requested for 20,000 dozen golf balls at a price of $22. For accepting or rejecting the offer following aspects should be considered.

1. The variable cost of the product is $ 18 . The price offered by the overseas customer is $ 22. It is known that the company has excess capacity to produce this units. This means that there wont be additional fixed cost for producing extra 22000 units. So when considering the financial effect, the order should be accepted.

2. It is always good for a company to accept a order overseas to increase the reputation of the company.

3. Following should be considered before accepting the order

a. In the long term run the other customers of the company may ask to supply for this reduced price when the special order pice is known to them.

b. The same overseas customer may come again asking for the reduced rate.