Problem
The Purple Haze Co has the capacity to produce 9,000 umbrellas per year. The company, using statistical analysis, projects the following:
Sales = 6,000 @ $10 for a total of $60,000
Manufacturing Costs
Variable $4 per unit
Fixed $15,000
Selling & Administrative
Variable $1 per unit
Fixed $4,000
Use the data above to answer the following:
1. Should the company accept a special order (as explained in the chapter, this means you will continue to do the business you are now doing - $60,000 plus the new sales) for 1,000 units at a price of $6 if:
2. There will be no variable selling & administrative costs for the special order. Should they take the special order based purely on the financial information? (They will continue to sell the 6,000 units they sell now as well as the new units)
3. Assume the same facts as in Question 1 except that there will be a $2,000 set up fee for the special order. Should they take the special order based purely on the financial information?
4. How would your analysis change if the company only had the capacity to produce 6,000 units? What other factors need to be considered?