Question: On March 26 Buoy Industries received a special order request

On March 26, Buoy Industries received a special order request for 120 ten-foot aluminum fishing boats. Operating on a fiscal year ending May 31, the company already has orders that will allow it to produce at budget levels for the period. However, extra capacity exists to produce the 120 additional boats.
The terms of the special order call for a selling price of $675 per boat, and the customer will pay all shipping costs. No sales personnel were involved in soliciting the order.
The ten-foot fishing boat has the following cost estimates:
• Direct materials, aluminum, two 49 × 89 sheets at $155 per sheet
• Direct labor, 14 hours at $15.00 per hour 
• Variable overhead, $7.25 per direct labor hour 
• Fixed overhead, $4.50 per direct labor hour
• Variable selling expenses, $46.50 per boat
• Variable shipping expenses, $57.50 per boat

1. Prepare an analysis for Buoy’s management to use in deciding whether to accept or reject the special order. What decision should be made?
2. To make an $8,000 profit on this order, what would be the lowest possible price that Buoy could charge per boat?

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  • CreatedMarch 26, 2014
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