Jerrys produces a plastic three-ring circus set. The set sells for $102. The capacity of the plant is 20,000 sets per year. Production costs are as follows for 20,000 sets:

 

	Per unit
Direct materials	$ 10.00
Direct labor	15.00
Variable overhead	20.00
Variable Selling costs	5.00
Fixed overhead	40.00
Total Cost	90.00
	========

 

A Canadianstore, which had previously not purchased from Jerrys, has approached the marketing manager about buying 6,000 sets for $88/set.No selling expenses would be incurred in this offer, but the Canadian firm wants its store name put on the package, which means an additional $2.50 cost per unit to Jerrys. Because the company is currently selling 19,000 sets, acceptance of this special order would require it to reject some of its current business.

 

1. How much betteror worse off is Jerrysif they acceptthe special order?Show computations. They would lose $42,000

Answer rating: 100% (QA)

Current Situation Selling price per set 102 Total cost per set 90 Current production capacity 20000 ... View the full answer