Rabbit Foot Motors has been approached by a new customer with an offer to purchase 5,000 units

Question:

Rabbit Foot Motors has been approached by a new customer with an offer to purchase 5,000 units of its hands-free, Wi-Fi-enabled automotive model-the SMAK-at a price of $18,000 per automobile. Rabbit Foot's other sales would not be affected by this new customer offer. Rabbit Foot normally produces 100,000 units of its SMAK model per year but only plans to produce and sell 90,000 in the coming year. The normal sales price is $35,000 per SMAK. Unit cost information for the normal level of activity is as follows:

Direct materials.........................$10,000

Direct labor.................................2,000

Variable overhead.........................4,000

Fixed overhead............................8,000

Total......................................$24,000

Fixed overhead will not be affected by whether or not the special order is accepted.

Required:

1. What are the relevant costs and benefits of the two alternatives (accept or reject the special order)?

2. By how much will operating income increase or decrease if the order is accepted?

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Related Book For  answer-question

Managerial Accounting The Cornerstone of Business Decision Making

ISBN: 978-1337115773

7th edition

Authors: Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

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