Custom Metal Works received an offer from a big-box retail company to purchase 3,000 metal outdoor tables for $220 each. Custom Metal Works accountants determine that the following costs apply to the tables:
Direct material ...................................$125
Direct labor ..........................................50
Manufacturing overhead........................... 70
Total ...............................................$245
Of the $70 of overhead, $14 is variable and $56 relates to fixed costs. The $56 of fixed overhead is allocated as $1.12 per direct labor dollar.
Required
a. What will be the real effect on profit if the order is accepted?
b. Explain why managers who focus on reported cost per unit may be inclined to turn down the order.