ADM 2341 Lecture Notes - Lecture 20: Decision Rule, Sunk Costs, Opportunity Cost
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If management makes its decision based on the total cost per unit of ( + ), the order would be rejected, because costs () would exceed revenues () by per unit. However, since the units can be produced within existing plant capacity, the special order will not increase xed costs. Let"s identify the relevant data for the decision. First, the variable manufacturing costs will increase by. Second, the expected revenue will increase by ,000 ( * Thus, sunbelt will increase its net income by ,000 by accepting this special order. Points: first, it is assumed that sales of the product in other markets would not be affected by this special order. If other sales will be lost, then sunbelt would have to consider the lost sales in making the decision. Second, if sunbelt was operating at full capacity, it is likely that the special order would be rejected.