The Cardinal Company produces T-shirts promoting Otterbein University to various retailers. The cost of producing and selling a single T-shirt at the company's current activity level of 12,000 units per month are:
- Direct materials $ 2.50
- Direct labor 3.00
- Variable manufacturing overhead 1.50
- Fixed manufacturing overhead 3.50
- Variable selling and admin. Expenses 2.50
- Fixed selling and admin. Expenses 0.50
The normal selling price is $16 per unit. The company's capacity is 15,000 units per month. Due to Otterbein University participating in the Division III National Championship game, an order has been received from a retailer for 2,000 additional T-shirts at $13 per unit. This order would not affect regular sales and would not change the company's total fixed costs.
- Ignore the impact of income taxes in your calculation.
- Should the order be accepted? What would be the impact on monthly profits?