As a result of an expansion program, Whitworth Enterprises, Inc., has excess capacity of 20,000 machine hours, which is expected to be absorbed by the domestic market in a few years. The company has received inquiries from two companies located in another country. One offers to buy 210,000 units of product F at $0.60 per unit; the second offers to buy 300,000 units of product D at $0.70 per unit. Whitworth Enterprises can accept only one of these two offers. The estimated costs for these products are as follows:
|
F |
D |
|
|
Materials |
$0.25 |
$0.35 |
|
Direct labor |
0.10 |
0.12 |
|
Factory overhead |
0.20 |
0.28 |
|
Total estimated cost |
$0.55 |
$0.75 |
Factory overhead is applied on a machine hour basis at $5.60 per hour; 75 percent of the
factory overhead is estimated to be fixed. No selling and administrative expenses would be
applicable to either order; transportation charges are to be paid by the buyer. Which order should the company accept?