Eretria Inc., a manufacturer, has received a special request for 1,000 units of its product, widgets, at a price of $52.50 per unit. The normal selling price for widgets is $60 per unit. Eretria Inc.'s annual capacity is 25,000 units and its current sales are 22,000 units per annum. To analyze this special order, Jim Blum, the sales manager, gathered the following budget information:
Direct materials per unit ............................... $ 2.10
Direct labour per unit ................................... 1.75
Variable overhead per unit ............................ 0.96
Fixed manufacturing overhead per unit ............. 1.10
Variable selling and administration per unit ....... 10.96
The variable selling and administration costs per unit represent commissions and would not be incurred on this order.
Required:
1. Should Eretria Inc. accept this special order?
2. Assume Eretria Inc.'s annual sales are 25,000 units. Should Eretria Inc. accept this special order?