Assume Gayle’s Glassworks manufactures and sells 5,000 flanges this period. Its competitor, Flora’s Flasks, sells flanges for $10 each. Can Gayle sell below Flora’s price and still make a profit on the flanges? #3  How would your answer to requirement 2 differ if Gayle’s Glassworks made and sold 10,000 flanges this period? Why? What does this indicate about the use of unit cost in decision making?

Principles of Accounting Volume 2
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Chapter10: Short-term Decision Making
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Total and unit cost, decision making:

 

Gayle’s Glassworks makes glass flanges for scientific use. Materials cost $1 per flange, and the glass blowers are paid a wage rate of $28 per hour. A glass blower blows 10 flanges per hour. Fixed manufacturing costs for flanges are $28,000 per period. Period (nonmanufacturing) costs associated with flanges are $10,000 per period and are fixed.

 

#2  Assume Gayle’s Glassworks manufactures and sells 5,000 flanges this period. Its competitor, Flora’s Flasks, sells flanges for $10 each. Can Gayle sell below Flora’s price and still make a profit on the flanges?

#3  How would your answer to requirement 2 differ if Gayle’s Glassworks made and sold 10,000 flanges this period? Why? What does this indicate about the use of unit cost in decision making?

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