Sweet Products produces mint syrup used by gum and candy companies. Recently, the company has had excess capacity due to a foreign supplier entering its market. Sweet Products is currently bidding o

Sweet Products produces mint syrup used by gum and candy companies.

Recently, the company has had excess capacity due to a foreign supplier entering

its market. Sweet Products is currently bidding on a potential order from Red

Sugar Candy for 5,000 cases of syrup. The estimated cost of each case is $27.50, as

follows: direct material, $10; direct labor, $5; and manufacturing overhead,

$12.50. The overhead rate of $2.50 per direct labor dollar is based on estimated

annual overhead of $1,500,000 and estimated direct labor of $600,000, composed

of $400,000 of variable costs and $1,100,000 of fixed costs. The largest fixed cost

relates to depreciation of plant and equipment. Should Sweet Products bid on the

Red Sugar Candy business at $20 per case?

A. No, because the incremental loss will be $7.50 per case.

B. Yes, because the incremental profit will be $1.67 per case.

C. No, because there are too many qualitative considerations.

D. Yes, because the incremental profit will be $2.50 per case.

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