The standard cost sheet for the leading product made by Ace Corporation shows the following data:
Direct materials ........................................................... $ 70
Direct labor (2 hours at $25/hour) ...................................... 50
Manufacturing overhead:
Variable costs (2 hours at $25/hour) ................................... 50
Fixed costs (2 hours at $22/hour) ...................................... 44
Total standard cost .................................................... $214
The product normally sells for $309. The company is presently operating slightly over 70 percent of capacity.
1. A chain of discount stores has offered to purchase 4,000 units of the product for $229 per unit. Shipping costs would be $2 per unit. Special packaging would be needed and would cost an additional $1 per unit. There would be no other variable selling or administrative expenses.
Should the order be accepted? (Show all calculations.)
2. Ignoring all factors except those given, what is the least amount that Ace Corporation could profitably accept for a special order of 4,000 units?