Pamela in Bamplona makes bull-repellent scent according to a traditional Spanish recipe, which normally sells at €9 (Euros) per unit. Normal production volume is 10,000 ounces per month. Average cost is €5 per ounce, of which €2 is direct material and €1 is variable conversion cost. This product is seasonal. After July, demand for this product drops to 6,000 ounces monthly. In November, Umberto offers to buy 1,500 ounces for €6,000. Now assume that the order is received in July, peak season. If Pamela accepts the order, she will turn away regular customers who order 500 ounces. Pamela should: a. reject the order, which loses €1,875 b.reject the order as it is less than her cost c.accept the order if Umberto raises the price higher than €6.58/ounce d.accept the order if Umberto raises the price higher than €5.58/ounce
Pamela in Bamplona makes bull-repellent scent according to a traditional Spanish recipe, which normally sells at €9 (Euros) per unit. Normal production volume is 10,000 ounces per month. Average cost is €5 per ounce, of which €2 is direct material and €1 is variable conversion cost. This product is seasonal. After July, demand for this product drops to 6,000 ounces monthly. In November, Umberto offers to buy 1,500 ounces for €6,000. Now assume that the order is received in July, peak season. If Pamela accepts the order, she will turn away regular customers who order 500 ounces. Pamela should: a. reject the order, which loses €1,875 b.reject the order as it is less than her cost c.accept the order if Umberto raises the price higher than €6.58/ounce d.accept the order if Umberto raises the price higher than €5.58/ounce
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Pamela in Bamplona makes bull-repellent
scent according to a traditional Spanish
recipe, which normally sells at €9 (Euros)
per unit. Normal production volume is
10,000 ounces per month. Average cost is
€5 per ounce, of which €2 is direct material
and €1 is variable conversion cost. This
product is seasonal. After July, demand for
this product drops to 6,000 ounces
monthly. In November, Umberto offers to
buy 1,500 ounces for €6,000. Now assume
that the order is received in July, peak
season. If Pamela accepts the order, she
will turn away regular customers who order
500 ounces. Pamela should:
a. reject the order, which loses €1,875
b.reject the order as it is less than her cost
c.accept the order if Umberto raises the
price higher than €6.58/ounce
d.accept the order if Umberto raises the
price higher than €5.58/ounce
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