Gashler Company sells motor oil by the case to automobile repair shops and dealerships. Each case of oil costs Gashler $15. The facility costs are $150,000 per period. Each period, Gashler sells approximately 100,000 cases of motor oil at $25 per case. California Classic Cars is requesting an order of 30,000 cases of motor oil in the next period at a price of $20 per case. Since Gashler has no excess capacity, accepting this order means that only 70,000 cases of motor oil can be sold through normal channels.
Should Gashler accept this offer? Why or why not?
Would your answer change it Gashler had excess capacity of 20,000 cases? Why or why not?
Gooch Catering Company has received an offer from a very important client to work a large party next month. The client has requested service for 1,000 people at $120 per person. Gooch normally charges $185 per person for catering services. Assuming that facility costs will not change if the order is taken and that unit-variable costs are $110 per person, should the offer be accepted? Why or why not?