Generalware, Inc A Foreign Company Wants to Purchase 15,000 Units

question 172

Essay

Generalware, Inc. sells a single product and reports the following results from sales of 100,000 units:
$\begin{array}{llr} \text {Sales (\$45 unit) } &\$4,500,000\\ \text { Less costs and expenses:} &\\ \text { Direct materials (\$16/unit). } &\$1,600,000\\ \text { Direct labor (\$9/unit).} &900,000\\ \text { Variable overhead (\$3/unit). } &300,000\\ \text {Fixed overhead (\$8.10/unit) } &810,000\\\text { Variable administrative (\$4.50/unit)} &450,000\\ \text { Fixed administrative (\$4/unit)} &400,000\\ \text {Total costs and expenses } &\$(4,460,000)\\ \text { Operating income } &\$40,000\end{array}$
A foreign company wants to purchase 15,000 units. However, they are willing to pay only $36 per unit for this one-time order. They also agree to pay all freight costs. To fill the order, Generalware
will incur normal production costs. Total fixed overhead will have to be increased by $60,000 to pay for equipment rentals and insurance. No additional administrative costs (variable or fixed) will be incurred in association with this special order.
Required:
(1) Should Generalware accept the order if it does not affect regular sales? Explain.
(2) Assume that Generalware can accept the special order only by giving up 5,000 units of its normal sales. Should the company accept the special order under these circumstances?

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Definitions:

Organization Design

Organization design involves the creation of the role, processes, and structure of an organization to ensure it can meet its objectives and strategy effectively.

Multinational Corporation

A company that operates in multiple countries, managing production or delivering services in more than one country.

Continuous Training

The ongoing process of providing employees with the necessary skills and knowledge to perform their jobs effectively, adapting to new technologies and changing industry standards.

HRM Practice

The application of management principles to the human resources of an organization, including hiring, training, performance assessment, and employee relations.