he Columbia Company manufactures a battery-powered saw. Due to increased demand during the past few years, Columbia has increased plant capacity for the saw to 300,000 units. The firm's expected output and sales for the next year in their normal market is 250,000 units, but it has recently received a special order for an additional 100,000 units from a firm outside its normal market. The standard selling price is $50 per unit, but this firm has been offered $37 per unit for the special order. The controller of Columbia in analyzing the offer has determined that to fill this order would require that they expand production to 300,000 units and reduce their sales by 50,000 units in their normal sales market. She/he also understands that indirect labor must be paid time and a half for the extra production. In addition, Columbia will qualify for a ten percent discount on the additional materials that they purchase. Direct labor productivity is also expected to increase by ten percent. Relevant cost data for the saw are as follows at their current production level are as follows: (hint: a productivity increase of x percent means that for the same labor cost they can produce x percent more)
Raw Materials $20
Direct Labor 10
Indirect Labor 3
Fixed Overhead 2
A) Itemize Columbia's Incremental Costs and their corresponding value. (Carry all answers out to two decimal places and do not round your answer)
B) Itemize the adjustments and their corresponding value.
C) What is the level of incremental profit (adjusted)?
D) Using the incremental profit framework, should Columbia accept the special order?