Which order should the company accept

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As a result of an expansion program, Whitworth Enterprises, Inc., has excess capacity of 20,000 machine hours, which is expected to be absorbed by the domestic market in a few years. The company has received inquiries from two companies located in another country. One offers to buy 210,000 units of product F at $0.60 per unit; the second offers to buy 300,000 units of product D at $0.70 per unit. Whitworth Enterprises can accept only one of these two offers. The estimated costs for these products are as follows:


F

D

Materials

$0.25

$0.35

Direct labor

0.10

0.12

Factory overhead

0.20

0.28

Total estimated cost

$0.55

$0.75

Factory overhead is applied on a machine hour basis at $5.60 per hour; 75 percent of the factory overhead is estimated to be fixed. No selling and administrative expenses would be applicable to either order; transportation charges are to be paid by the buyer. Which order should the company accept?

 

Reference no: EM13513058

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