Cooling System, Essay Example

What costs should Carl take into consideration when deciding to service the order for an additional unit? Why?

The expenses that need attention under this condition are the expenses required in the production of another unit. Thus, Carl needs to take into account the 5,000 USD costs for producing another unit of the product instead of considering the expenses as 30,000 USD only expended on experimentation because the 30,000 USD cost is an already sunk expense and consequently will not have any impact on either producing an additional unit or any other production. Although 30,000 USD is a large sum of money, it cannot be considered at this point since it has already been incurred and hence irreversible. Besides, the decision of consumers regarding a given product is contingent upon production of additional unit since they decide at the margin. Consumers make comparisons between marginal utility and the marginal expenses required in the acquisition of the product. Therefore, it is imperative for Carl to consider $5,000 required in creation of the additional unit of the commodity.

Carl receives an order for four new units for a customer, but when he takes the order to his manager, the manager is enraged and asks Carl why he wanted to produce something at a loss. What costs would the manager be looking at to come to this conclusion?

The manager in this particular circumstance will most likely notice the costs of experimentation of 30,000 USD. This cost is noticeable by the manager as it is a considerable sum of money regardless of its usefulness in production. Setting up of experimentation expenses enables the firm to deal with challenges in a more effective way. With the increasing digital transformation in the realm of business, introduction of experimentation aids the enterprise to enhance its agenda of innovation. Therefore, since the process relies on the mindset and culture of the organization, it results in more significant costs as shown, $30,000. However, it is imperative to have an understanding that at this particular position, this amount of money stands no chance of recovery and hence any stoppage to the process of production will not reverse the case. If the manager resolves to halt production, it will imply that the organization will incur extra losses that may result in the company losing its profit of 1,500 USD.