Selling the products to Wholesaler Z is the wisest course of action. You still have the option to sell 500 additional units if Wholesaler Y approves.
A supplying organisation called as a wholesaler serves as a go-between for manufacturers and retailers. With a retail license, they are able to purchase goods in bulk from producers at a lower cost and resell them to other company owners for a little premium. Typically, a wholesaler doesn't sell goods to final customers directly.
Providing the following details:
Each unit carries a variable cost of $100.
Wholesaler Y promises to purchase 2,000 extra units for $120 each.
Wholesaler Z suggests purchasing 1,500 more units at a cost of $140 each.
In this scenario, the alternative with the highest revenue gain is the optimal option to select:
Income impact equals the whole contribution margin
Retailer Y:
Effect on income equals 2,000*(120 - 100) = a gain of $40,000
Retailer Z:
Effect on income equals 1,500*(140 - 100)= a gain of $60,000
Selling the products to Wholesaler Z is the wisest course of action. You still have the option to sell 500 additional units if Wholesaler Y approves.
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The complete question is-
Viking Corporation is operating at 80% of capacity, which means it produces 8,000 units. Variable cost is $ 100 per unit. Wholesaler Y offers to buy 2,000 additional units at $ 120 per unit. Wholesaler Z proposes to buy 1,500 additional units at $ 140 per unit. Which offer, if either, should Viking Corporation accept? Fixed costs are not affected by accepting either offer.
A. Accept both.
B. Reject both.
C. Accept Wholesaler Y
D. Accept Wholesaler Z
