Problem:
1. The Spartan Company has an annual plant capacity of 25,000 units. Predicted data on sales and costs are given below.
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Sales (20,000 units @ $50)
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$1,000,000
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Manufacturing costs:
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Variable (materials, labor, and overhead)
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$40 per unit
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Fixed overhead
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$30,000
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Selling and administrative expenses:
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Variable (sales commission-$1 per unit)
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$2 per unit
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Fixed
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$7,000
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A special order has been received from outside for 4,000 units at a selling price of $45 each.
This order will have no effect on regular sales. The usual sales commission on this order will be reduced by one-half. Should the company accept the order? Show supporting computations.