Crowder Industries makes tennis balls. Its only plant can produce up to 3.5 million cans of balls per year. Current production is 2.5 million cans. Annual manufacturing, selling, and administrative fixed costs total $1,000,000. The variable cost of making and selling each can of balls is $1.00. Stockholders expect a 20% annual return on the company’s $6 million of assets.
a) What is Crowder’s current full cost of making and selling 2.5 million cans of tennis balls? What is the current full unit cost of each can of tennis balls?
b) Assume Crowder is a price-taker, and the current market price is $2.50 per can of balls. This is the price at which manufacturers sell to retailers. Given Crowder Industries’ current costs will the company reach stockholders’ profit goals?
c) Nike has just asked Crowder to supply the company with 500,000 cans of balls at a special order price of $1.80 per can. Nike wants Crowder to package the balls under the Nike label (Crowder will imprint the Nike logo on each ball and can). Crowder will have to spend $30,000 to change the packaging machinery. Assuming the original volume and costs, should Crowder Industries accept this special order?