Consider the following information, prepared based on a capacity of 100,000 units:

_________________Category_________________________Cost per Unit

Variable manufacturing costs.....................$12.00

Fixed manufacturing costs...........................$3.00

Variable selling costs...................................$5.00

Fixed selling costs........................................$2.00

Capacity cannot be added in the short run and the firm currently sells the product for $30 per unit.

a) The company is currently producing 90,000 units per month. A potential customer has contacted the firm and offered to purchase 10,000 units this month only. The customer is willing to pay $24 per unit. Since the potential customer approached the firm, there will be no variable selling costs incurred. Should the company accept the special order? Why or why not? Be specific.

b) Assume the same facts as in part a, except that the company is producing 900,000 units per month. Should the company accept the special order? Why or why not? Be specific.

Answer rating: 100% (QA)

1Total variable costs 12 5 17 Total fixed cost irrespective of actual production 1... View the full answer