Question: Belco Manufacturing produces and sells oil filters for 3 35

Belco Manufacturing produces and sells oil filters for $ 3.35 each. A retailer has offered to purchase 20,000 oil filters for $ 1.75 per filter. Of the total manufacturing cost per filter of $ 1.90, $ 1.40 is the variable manufacturing cost per filter. For this special order, Belco would have to buy a special stamping machine that costs $ 8,000 to mark the customer’s logo on the special- order oil filters. The machine would be scrapped when the special order is complete. This special order would use manufacturing capacity that would other-wise be idle. No variable nonmanufacturing costs would be incurred by the special order. Regular sales would not be affected by the special order.

Would you recommend that Belco accept the special order under these conditions?

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  • CreatedAugust 27, 2014
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