Kahlenberg Ltd. manufactures a product that has a fixed cost of € 800,000.00 and a variable cost 0f € 200.00 per unit. The business has making 20,000 units and selling them for € 400.00 per unit. There is excess capacity in the plant and there is an additional offer to sell 1,000 units for € 240.00 per unit.
What should Kahlenberg Ltd. do?

Question

Kahlenberg Ltd. manufactures a product that has a fixed cost of € 800,000.00 and a variable cost 0f € 200.00 per unit. The business has making 20,000 units and selling them for € 400.00 per unit. There is excess capacity in the plant and there is an additional offer to sell 1,000 units for € 240.00 per unit.

What should Kahlenberg Ltd. do?

Accepted Answer

Kahlenberg Ltd. should accept the offer because of the additional contribution that can be achieved.

Accepted Answer

In this case Kahlenberg Ltd. can achieve additional profit of € 40,000.00.

Answer

Kahlenberg Ltd. should not accept the offer because the selling price does not cover the full cost.

Answer

Kahlenberg Ltd. should not accept the offer because the selling price for the offer is below the selling price for the first 20,000 units.

Crowdly

Kahlenberg Ltd. manufactures a product that has a fixed cost of € 800,000.00 and...

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