Question: GS (a Belgian company) makes 500 TH covers a week at a per unit cost of 3.50 Euros, which includes variable costs and allocated fixed costs. GS sells TH covers to distributors for 4.25 Euros. A distributor in Japan wants to purchase 100 TH covers per week they offer to pay 2 Euros per head cover. GS has enough capacity to produce an additional 100 TH covers and estimates that if accepts the offer the per unit cost of all 600 TH covers will be 3.1 Euros. Assuming the cost data provided is accurate estimates of GS’s costs of producing covers. Further assume that GS’s variable cost per dead cover does not vary with the number of head covers manufactured.

a. To maximize firm value should GS accept this offer? Explain why or why not.

b. Given the data what is GS’s weekly fixed cost of producing the TH covers?

c. Besides the data provided above, what other factors would GS consider before making a decision to accept company’s offer?