Louis the Child manufactures Gold Body Glitter. For 2018, Lo…
Louis the Child manufactures Gold Body Glitter. For 2018, Louis the Child has budgeted 32,000 units of glitter to be manufactured. The company currently has machines in place that are able to manufacture 40,000 units, but will incur an additional $300,000 to manufacture anywhere from 40,001-65,000 units. Fixed costs, excluding the $300,000 are $127,360. Direct labor costs are $10 per unit, direct material costs are $15 per unit, and variable overhead costs are $20 per unit. 3) Ignore the ability to manufacture more than 40,000 units for $300,000. Kaskade approaches Louis the Child and wants to lease capacity from Louis the Child for $2 per unit. Kaskade is in direct competition with Louis the Child so Louis the Child expects its selling price to be $85 and demand to be 20,000 units as a result of Kaskade being in the market. Had Kaskade never entered the market, Louis the Child anticipated it could sell 30,000 units at $75 per unit. If Louis the Child rejects Kaskade’s offer, Kaskade will use another machine elsewhere. Assume Louis the Child does not desire to have any units in ending inventory at the end of the period. What should Louis the Child do with Kaskade’s offer?