Sandhoppers Queensland Car Company manufactures motor vehicles.The Red Car Division sells its red cars for $25 000 each to the general public.The red cars have manufacturing costs of $12 500 each for variable and $5000 each for fixed costs.The division's total fixed manufacturing costs are $25 000 000 at the normal volume of 5000 units.
The Blue Car Division has been unable to meet the demand for its cars this year.It has offered to buy 1000 cars from the Red Car Division at the full cost of $17 500.The Red Car Division has excess capacity and the 1000 units can be produced without interfering with the current outside sales of 5000.The 6000 volume is within the division's relevant operating range.
Explain whether the Red Car Division should accept the offer.
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The Answer of Sandhoppers Queensland Car Company manufactures motor vehicles.The Red Car Division sells its red cars for $25 000 each to the general public.The red cars have manufacturing costs of $12 500 each for variable and $5000 each for fixed costs.The division's total fixed manufacturing costs are $25 000 000 at the normal volume of 5000 units.
The Blue Car Division has been unable to meet the demand for its cars this year.It has offered to buy 1000 cars from the Red Car Division at the full cost of $17 500.The Red Car Division has excess capacity and the 1000 units can be produced without interfering with the current outside sales of 5000.The 6000 volume is within the division's relevant operating range.
Explain whether the Red Car Division should accept the offer.
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Sandhoppers Queensland Car Company Manufactures Motor Vehicles