$12-3$B $$ Special Order

Eversharp is a knife manufacturer. The company normally sells $5,000$ sets of high quality knives each year and, with its current staff and machinery, has the capacity to produce up to $6,000$ sets of knives. At this level of output, the company estimates its costs of producing and selling one set of knives as follows:

Per unit Direct materials $$5\mathrm{.}00$ Direct labour $1\mathrm{.}50$ Variable manufacturing overhead $1\mathrm{.}00$ Fixed manufacturing overhead $2\mathrm{.}00$ Sales commissions $1\mathrm{.}50$ Fixed selling and administrative expenses $4\mathrm{.}00$ Total costs $$15\mathrm{.}00$

The company$$s selling price is $$20$ per unit. An order has been received for $500$ units, but because it$$s a bulk purchase, the buyer has requested a $40\%$ price discount. If the order were accepted it would not affect the company$$s regular sales. There would be no sales commissions on this deal, and fixed costs would not be affected. The purchasing company would like their logo engraved into the handle of each knife, which would increase labour costs by $$0\mathrm{.}25$ per unit and require the purchase of a new machine for $$2,000.$

Required

a$.)$ Determine the net dollar advantage or disadvantage of accepting the order.

b$.)$ Separate from a$.),$ assume the company finds a box from $1994$ containing $1,000$ old steak

knives, although styles have changed, the knives are still of a reasonably good quality and sharpness. Assuming manufacturing cost data was similar in $1994$ to the chart above, what is the minimum selling price that should be accepted? why fixed cost is not included?