Order 2447159: Please see instructions

Aim: To assess a business opportunity appropriately using relevant cost considerations

Consider the following scenario:

· You have received an order for 10,000 No. 9 widgets from a regular customer. They are prepared to pay US10 per widget.

· Your production manager points out that this is not enough to recover the overheads that will be allocated to the production run, and that you will need to increase the price to at least US11per widget simply to break-even. These overheads amount to US3 per widget, the rest of the cost being split equally between materials and direct labour.

· You haven’t made any No. 9 widgets for some time as they are more or less obsolete. You expect that this is likely to be your last order. They use only one material—a special substance called “ninerate”, and you have enough in stock to make these widgets. It has no other use.

· You know that the order will show up as losing US1 per widget in the monthly management accounts.

We would like you to decide whether to accept the customer’s order by calculating the benefit or cost to the business of doing so. Try to identify whether there is any further information you would need before making your decision

Assignment

Write a short summary, of approximately 300 words in length, of your calculations and decision, justifying your choice