Cable company produces 400,000 ft of cable each year. At 400,000 ft per yer the cost per ft is as follows:

Direct material $.32
Direct labor .14
Variable ovrhead .08
Fixed overhead .73

total 1.27

new customer wants to purchase 175,000 ft of cable for $.92 per ft. This can easily be manufactured but the president doesn't not understand how the sales manager can expect him to accept this losing offer.

a. Prepare a schedule that detail the advantage or disadvantage of selling the 175,000 ft of cable
b. what is they could produce the order but it would require purchasing a $20,000 machine that would last 5 years with no salvage value? Should they accept the offer?

Now I figured that they would loose $61,250 if the additional cost of the 175,000 ft of cable was at 1.27. There is nothing to do a high low comparison with or is there? If the fixed cost was .73 then they would have .35 left as a variable cost for the 1.27per ft. Do I use that as my high and .92 - .73 fixed = .19 as the low? Then what do I divide it by?

I'm confused and the book that I have to use really stinks!

Asasa