Bradley Inc. has the capacity to make 100,000 windows. Bradley is currently operating at 100% capacity. The windows usually sell for $20.00 each. Costs for each window follow: The Army has offered to buy 10,000 windows for $12.00 each for barracks. Bradley should:
A)Reject the offer because it currently does not have enough capacity to accept the order.
B)Reject the order because the company will lose $20,000 on the order.
C)Accept the offer because the company will realize $20,000 in additional contribution margin.
D)Accept the offer because the company will realize $40,000 in additional contribution margin.

Question

Bradley Inc. has the capacity to make 100,000 windows. Bradley is currently operating at 100% capacity. The windows usually sell for $20.00 each. Costs for each window follow:  The Army has offered to buy 10,000 windows for $12.00 each for barracks. Bradley should:
A)Reject the offer because it currently does not have enough capacity to accept the order. 
B)Reject the order because the company will lose $20,000 on the order. 
C)Accept the offer because the company will realize $20,000 in additional contribution margin. 
D)Accept the offer because the company will realize $40,000 in additional contribution margin.

Quizplus · Accepted Answer

Bradley should reject the offer if it would have to displace orders for the windows that are priced higher than $12.00.