Commodore Candies produces a 3-pound box of chocolate that it sells for $6.75 to various retail outlets. Commodore’s output capacity for this product is 10,000 units per month, with a one-shift operation, but it can produce more using overtime labor, which has a premium of 15% over regular labor cost. Variable overhead expenses would be 10% higher per unit of output for overtime production. Average variable costs are constant from 8,000 to 10,000 units and are then constant at the higher level. Costs of production for the current month’s output of 8,000 units are as follows:
TOTAL COSTS
Raw materials $ 9,600
Direct labor 17,600
Variable overhead 9,200
Fixed overhead 14,500
Today Commodore is faced with a decision. A large retail chain has offered to purchase a bulk order of 4,000 units at $6 per unit, to be delivered within thirty days. Should Commodore take this order? Support your answer with a discussion of the issues involved. Defend any assumptions you make.