The Home Office Company Makes All Types of Office Desks

question 51

Essay

The Home Office Company makes all types of office desks. The Computer Desk Division is currently producing 10,000 desks per year with a capacity of 15,000. The variable costs assigned to each desk are $300 and annual fixed costs of the division are $900,000. The computer desk sells for $400.
The Executive Division wants to buy 5,000 desks at $280 for its custom office design business. The Computer Desk manager refused the order because the price is below variable cost. The executive manager argues that the order should be accepted because it will lower the fixed cost per desk from $90 to $60 and will take the division to its capacity, thereby causing operations to be at their most efficient level.
Required:
a. Should the order from the Executive Division be accepted by the Computer Desk Division? Why?
b. From the perspective of the Computer Desk Division and the company, should the order be accepted if the Executive Division plans on selling the desks in the outside market for $420 after incurring additional costs of $100 per desk?
c. What action should the company president take?

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Definitions:

Canadians

Residents or citizens of Canada, a country in North America.

Canadian Community Health Survey

A nationwide survey gathering information related to health status, healthcare utilization, and health determinants for the Canadian population.

Diabetes Risk

The likelihood of developing diabetes based on genetic, lifestyle, and environmental factors.

Canadians

Individuals originating from or holding citizenship in Canada, a country in North America.