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
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D
|
|
Materials
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$0.25
|
$0.35
|
|
Direct labor
|
0.10
|
0.12
|
|
Factory overhead
|
0.20
|
0.28
|
|
Total estimated cost
|
$0.55
|
$0.75
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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?