Fane Industries Ltd. has been approached by a customer who wishes to purchase 50,000 units of its product at $52 per unit. The customer requires delivery within one month. The company has capacity to produce 350,000 units per month and has 5,000 units currently in stock. Sales to Fane's regular customers are forecast at 325,000 units for the upcoming month. The sales manager has indicated that if the company' accepts the special order, it would be able to recover 30% of the sales lost to regular customers. Units sold through normal distribution channels have a selling price of $70 per unit and the gross margin earned on each unit is $24. Selling and administration costs total $16 per unit.
A further analysis determined that the variable manufacturing costs of the regular units are $35 per unit with variable selling costs of $12 per unit. Because of the nature of the special order, the selling costs will be reduced to $8.00 per unit.
1. Should Fane accept die offer from the customer?
2. What is the minimum price Fane should charge for this order?
3. What factors should be considered in pricing special orders

  • CreatedJuly 31, 2015
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