Lanam Co. has been producing and selling 10,000 units per month, with the following total costs:
Direct materials............................................... $20,000
Direct labor..................................................... 35,000
Manufacturing overhead: Variable ................. 15,000
Fixed ................. 24,000
Selling expenses: Variable.............................. 10,000
Fixed.................................. 13,000
The normal selling price is $15 per unit. The company has received an offer from a special customer who would like to buy exactly 5,000 units of product for $9 per unit. This special order would incur none of the usual variable selling expenses. Additional administrative expenses specifically related to this special order would be $1,500.
Required:
a) Suppose plant capacity is 18,000 units. Should Lanam accept this special order?
b) Suppose plant capacity is 13,000 units. Should Lanam accept this special order?