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Select Solutions; P 1-8: Solution to Golf Specialties (20 minutes) [Average versus variable cost of an incremental order] a. The change in total cost if the 100 unit Kojo offer is accepted is: 600 × 3.10 euros – 500 × 3.50 euros = 110 euros Or, each head cover has variable cost of 1.10 euro. Since Kojo is willing to pay 2 euros per head cover or 200 euros for 100 covers, by accepting this order GS makes 90 euros a week. Therefore, GS should accept Kojo’s offer if these are all the relevant facts. b Given that the variable cost per head cover is 1.10 euros, the fixed cost per week is: AC = FC/Q + VC 3.10 = FC/600 + 1.10 3.50 = FC/500 + 1.10 FC = 1,200 euros FC = 1,200 euros c. GS should consider the following non-quantitative factors: What prevents Kojo from reselling the head covers back to dealers in Europe at prices below GS’s current price of 4.25 euros? If GS sells the head covers to Kojo at 2 euros, what prevents GS’s European customers from learning of this special deal and demand similar price concessions. In other words, why do we expect to be able to implement this price discrimination strategy? Will Kojo purchase other GS products and import them to Japan? What is Kojo’s credit worthiness and will they pay for the head covers upon taking delivery? P 1–10: Solution to Montana Pen (25 minutes) [Incremental cost of outsourcing] a. The average cost information given in the problem does not tell us what 400 clips cost. Like in the Vortec example from the chapter, the incremental cost of the 400 clips must be estimated from the following: = = B130/clip At the current volume of 1,200 clips, the total cost is B222,000 (B185 × 1,200). If 400 clips are outsourced, reducing in-house volume to 800, the total cost falls to B170,000 (B212.5 × 800). Hence, total cost falls B52,000 (B222,000 - B170,000), or B130 per clip (B52,000 ÷ 400). Therefore, if 400 clips are outsourced to the Chinese company, Montana saves B130 pe