Rome Metals Cost BreakdownPer Unit Direct materials $8 Direct labor $45 Variable overhead $9 Fixed overhead $14 Shipping Cost $2 Total Per Unit $78
Rome Metals a US based firm located in Rome, Georgia makes metal brackets used in the construction of warehouse shelving. The firm has a practical capacity of 42,000 units and for the past several years has produced at a constant volume of 35,000 units/year. Rome Brackets are priced at $92/unit. The manufacturing costs incurred to make a bracket at the 35,000 unit level is shown above. Note that the $2/unit shipping cost
is included in the manufacturing costs breakdown
. An order for 10,000 has been received from a new customer – Fedex Logistics Services – but at a required price of only $78/unit. Fedex has agreed to pick up the order from the Rome facility itself saving Rome Metals the shipping fee. Due to capital constraints Rome Metals cannot adjust its practical capacity nor does the firm have any potential outsourcing partners. Assuming no loss of existing customer goodwill, should Rome Metals accept the offer from Fedex Logistics Services.