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Sunshine State Fruit Company sells premium-quality oranges and other citrus fruits by mail order. Protecting the fruit during shipping is important, so the company has designed & produces shipping boxes. The annual cost to make 80,000 boxes is:
Material
$112,000
Labour
20,000
Indirect manufacturing costs %u2013 variable
16,000
Indirect manufacturing costs %u2013 fixed
60,000
Total
208,000
Therefore, the box Cost per box averages = $2.60
Suppose Weyerhaeuser submits a bid to supply Sunshine State with boxes for $2.10 per box. Sunshine must give Weyerhaeuser the box design specifications, and the boxes will be made according to those specs.
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