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Should highvalu accept the given offer

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HighValu Inc. manufactures a moderate-price set of lawn furniture (a table and four chairs) that it sells for $225. It currently manufactures and sells 6,000 sets per year. The manufacturing costs include $85 for materi- als and $45 for labor per set. The overhead charge per set is $35, which consists entirely of fixed costs.

HighValu is considering a special purchase offer from a large retail firm, which has offered to buy 600 sets per year for three years at a price of $150 per set. HighValu has the available plant capacity to produce the order and expects no other orders or profitable alternative uses of the plant capacity.

Required Should HighValu accept the offer?

Reference no: EM13878399

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