Problem:
EC Industrials manufactures widgets that sell for R126 each.
The cost of producing and selling 240 000 units are estimated as follows;
Variable Costs per unit:
|
Direct Materials
|
R 30
|
|
Direct Labour
|
R 18
|
|
Factory Overhead
|
R 12
|
|
Selling and Administrative Expenses
|
R 15
|
|
|
R 75
|
Fixed Costs:
|
Factory Overhead
|
R 3 200 000
|
|
Selling and Administrative Expenses
|
R 1 200 000
|
In the current year, to date 180 000 units were manufactured and sold. An additional 45 000 units are expected to be sold on the domestic market during the remainder of the year. EC Industrials received an offer from Namibia Wholesalers for 12 000 widgets at R84 each. Namibia Wholesalers will market the product in Namibia with its own name brand and no additional expenses will be incurred by EC Industrials. The sale to Namibia Wholesalers is not expected to affect domestic sales of the product and the additional units could be produced during the current year using excess capacity.
As the Marketing Manager you are requested to make a decision to either accept or reject the above proposal and to motivate the decision you have made.