Healthy Plus manufacturers non spill mugs and besides regular retail store customers the company will receive special orders from franchises such as MacDonald’s and Tim Hortons to manufacture a mug with the franchise logo. The manufacturing capacity is 1,500,000 mugs per year and regular sales to retail customers is 1,300,000 mugs per year. Healthy Plus has received an order from Fitness First or (FF) for an order of 300,000 mugs. FF does require a modification to the current mug which will require special equipment costing $10,000 and will increase material cost by $.75 per unit. FF is willing to pay $4.5 per mug. Current production costs for regular retail customers based on a capacity of 1,500,000.

Sales price $ 5.00 per mug

Direct materials $.50 per mug

Direct labour $ .80 per mug

Variable overhead $ .25 per mug

Commissions $.05 per mug

Fixed manufacturing $ .07 per mug

Fixed selling $ .10 per mug

Other information:

Commissions on each mug sold to FF will be $ .02 per mug.

Required:

1. Should the special order be accepted?
2. What is the minimum price Healthy Plus should accept for the special order?
3. What other factors should be considered.

Answer rating: 100% (QA)

a Evaluation of Special order Per unit Total Total units 300000 450 1350000 Special order sales reve... View the full answer