The following data refer to Clear Panes, a division of Global Corporation. Clear Panes makes and sells residential windows that sell for $150 each. Clear Panes expects sales of 150,000 units in 2017. Clear Panes’ annual fixed costs are $2,750,000 and their variable cost is $90 per window. Global evaluates Clear Panes based on residual income. The total investment attributed to Clear Panes is $12 million and the required rate of return on investment is 16%. Ignore taxes and depreciation expense. Answer each of the following parts independently, unless otherwise stated. Q. One of Clear Panes’s regular customers asks for a special window with stained glass inserts. The customer requires 2,500 of these windows. Clear Panes estimates its variable cost for these special units at $105 each. Clear Panes will also have to undertake new investment of $300,000 to produce these windows. What is the minimum selling price that will make the deal acceptable to Clear Panes? Also suppose that the customer has offered $130 for each stained glass window. In addition, the customer has indicated that its purchases of the existing product will drop by 1,500 units. a. At what drop in unit sales of the regular window would Clear Panes be indifferent to the offer?
The following data refer to Clear Panes, a division of Global Corporation. Clear Panes makes and sells residential windows that sell for $150 each. Clear Panes expects sales of 150,000 units in 2017. Clear Panes’ annual fixed costs are $2,750,000 and their variable cost is $90 per window. Global evaluates Clear Panes based on residual income. The total investment attributed to Clear Panes is $12 million and the required rate of
Q. One of Clear Panes’s regular customers asks for a special window with stained glass inserts. The customer requires 2,500 of these windows. Clear Panes estimates its variable cost for these special units at $105 each. Clear Panes will also have to undertake new investment of $300,000 to produce these windows. What is the minimum selling price that will make the deal acceptable to Clear Panes? Also suppose that the customer has offered $130 for each stained glass window. In addition, the customer has indicated that its purchases of the existing product will drop by 1,500 units.
a. At what drop in unit sales of the regular window would Clear Panes be indifferent to the offer?
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