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What price is the minimum that should be accepted

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Euphonium Ltd. has an opportunity to obtain a new contract for the production of a new valve. The valve requires 200 hours of processing on machine A, which is already working at full capacity on the production of another product. There is thus no way in which production of the valve can be accommodated unless production of the other product is reduced. The lost contribution from the displaced product amounts to £500. In addition, the variable costs of the new valve amount to £1500.

(i) What price is the minimum that should be accepted?

(ii) What implications are there for the company, in both the short term and the long term, of accepting this special order?

Reference no: EM13878980

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