Ivanhoe Packaging Company is a leading manufacturer of cardboard boxes and other product packaging solutions. One of the company’s major product lines is custom-printed cake boxes that are sold to some of the country’s best-known bakeries at a price of $0.50 per box. To maintain its high-quality image, Ivanhoe uses thick premium-coated paper for all of its cake boxes. Based on annual production of 1,000,000 boxes, Ivanhoe’s cost for producing a box is as follows:
Paper – $0.16
Ink – $0.05
Direct labor – $0.05
Variable overhead – $0.07
Fixed overhead – $0.10
Total cost per box – $0.43
Andrea Borden, a recent graduate of the Culinary Institute of America, is opening a new bakery in her hometown. She recently contacted Brad Lail, Ivanhoe’s top salesperson, about purchasing cake boxes for her new store. Brad described Ivanhoe’s boxes, emphasizing the high-quality paper and the unique printing process the company uses. Andrea is looking for ways to lower her operating costs, so after hearing Brad describe Ivanhoe’s boxes, she told him that all she needed was a simple, unprinted box. Andrea also told Brad that she needs 9,600 boxes and is willing to pay $0.26 per box.
After visiting with Andrea, Brad received a fax from one of London’s top bakeries. The bakery’s normal box supplier suffered some fire damage and is unable to ship the bakery’s order of 9,600 boxes this month. The bakery’s owner is asking if Ivanhoe can fill a one-time rush order of 9,600 boxes printed with the bakery’s logo. The bakery is willing to pay a 10% price premium to expedite the order. If Ivanhoe accepts the order, it will incur $804 in export taxes and shipping.
Should Ivanhoe accept the London bakery’s offer?
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