A week before delivery, the customer indicated that it could only take 600 of the 800 items. Because of the long-standing relationship MFMI decided to accept this revised arrangement and mandate the...

A week before delivery, the customer indicated that it could only take 600 of the 800 items. Because of the long-standing relationship MFMI decided to accept this revised arrangement and mandate the sales team to sell the remaining 200 items in the market for at least $7000 per item. At the end of the period the sales team reported to management that they have identified buyers who were willing to purchase the 200 items at a rate of $6100 per item and at the management’s preferred price only 140 of the 200 would be sold.

1. Assumed that the sale team is correct, determine the quantity that would be sold if management agreed to a 5% reduction in their original price.


2. Based on your response to part (ii), describe the type of demand for this item.

Assumes that the firm retools, would it make an accounting profit if the additional 200 units relating to this transaction are sold at the price recommended by the Sales Team?

As the Cost Accounting Officer, you were asked by the Managing Director to assess the options available to the firm, consider all factors at play and advise MFMI on how best to proceed. Your comprehensive analysis should include the following:

1. All relevant and necessary definitions, assumptions, and calculations including those relating to implicit and explicit costs, as well as accounting and economic profit.


2. Evidence-based recommendations on whether to overhaul/retool the factory and continue in operations, do not retool but continue operating or the sell the company and exit the industry.