Brio Company Produces a Part That Is Used in the Manufacture

question 36

Short Answer

Brio Company produces a part that is used in the manufacture of one of its products. The unit manufacturing costs of this part, assuming a production level of 6,000 units, are as follows:
$$\begin{array} { | l | r | } \hline \text { Direct materials } & \$ 5 \\\hline \text { Direct labor (variable cost) } & 6 \\\hline \text { Variable manufacturing overhead } & 3 \\\hline \text { Fixed manufacturing overhead } & 4 \\\hline \text { Total cost } & \$ 18 \\\hline\end{array}$$ Fine Company has offered to sell 6,000 units of the same part to Brio Company for $17.50 per unit. Assuming the company has no other use for its facilities and that the fixed manufacturing costs are unavoidable. What should Brio Company do?

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Definitions:

Market Share

The segment of a market held by a certain company or product.

Market Growth

An increase in the demand for a particular product or service over time, which can be influenced by factors like changes in consumer preference, population growth, and technological advancement.

BCG Matrix

A strategic business tool developed by the Boston Consulting Group that uses market growth rate and market share to evaluate the relative performance of products or business units.

Market Leaders

Market leaders are companies that hold the largest market share in a particular industry or category, often setting trends, pricing standards, and competitive benchmarks.