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Chapter 2: Q7-17OQ (page 163)

A certain custom engraving shop has traditionally had orders for between 1 and 50 units of whatever a customer orders. A large company has contacted this shop about engraving “reward” plaques (which are essentially identical to each other). It wants the shop to place a bid for this order. The volume is expected to be 12,000 units per year and will most likely last four years. To successfully bid (low enough price) for such an order, what will the shop likely have to do?

Short Answer

Expert verified

Analyses of decision making.

Step by step solution

01

Estimate of recovery of the amount invested

In order to find out the estimated recovery of the invested amount, the shop management should make a break-even analysis. It will help identify the outcomes that are good for them and those that are not.

02

Considering the manufacturing cost

The output will be higher between1-50. According to the requirement, the shop will have to make manufacturing plans.

03

Step 3:The further step of the shop

The shop is getting an order of 4800 units, spreading over four years. The bid should be low enough to get the order.

Thus, the shop should analyze its decision carefully.

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