Problem - Delta Screen Corporation is currently operating at 60% of capacity and producing 6,000 screens annually. The normal selling price is $750 per screen. They recently received an offer from a company in Germany to purchase 2,000 screens for $500 per unit. Delta has not previously sold products in Germany. Budgeted production costs for 6,000 and 8,000 screens follow:
Units Produced 6,000 8,000
Direct Materials Cost $750,000 $1,000,000
Direct Labor Cost 750,000 1,000,000
Variable Overhead 900,000 1,200,000
Fixed Overhead 1,200,000 1,200,000
Total Cost 3,600,000 4,400,000
Full Cost per Unit 600 550
Delta's marketing manager believes that although the price offered by the German customer is lower than current price, the order should be accepted to gain a foothold in the German market. The production manager, however, believes that the order should be rejected because the unit cost is higher than the price offered.
a. If the president of Delta were to call on you to resolve the difference in opinion, what would you recommend? Explain.
b. What is the minimum price for the special order if Delta is operating at full capacity?