Question - Consider the following information, prepared based on a monthly capacity of 90,000 units:
Category - Cost per Unit
Variable manufacturing costs - $27
Fixed manufacturing costs - $6
Variable selling costs - $5
Fixed selling costs - $3
Capacity cannot be added in the month and the firm currently sells the product for $48 per unit.
Consider each of these scenarios independent of each other.
a) The company is currently producing 81,000 units per month. A potential customer has contacted the firm and offered to purchase 6,000 units this month only. The customer is willing to pay $40 per unit. Since the potential customer approached the firm, there will be no variable selling costs incurred. Should the company accept the special order? Why or why not? Be specific.
b) Assume the same facts as in part a, except that the company is producing 90,000 units per month. Should the company accept the special order? Why or why not? Be specific.
c) List and describe other factors (not those addressed in parts a and b) that should be taken into consideration when deciding whether to accept a special order? Be specific in your responses.