Silver Lake Cabinets is approached by Ms. Jenny Zhang, a new customer, to fulfill a large one-time-only special order for a product similar to one offered to regular customers. The following per unit data apply for sales to regular customers:
| Direct materials |
$100 |
| Direct labor |
125 |
| Variable manufacturing support |
60 |
| Fixed manufacturing support |
75 |
| Total manufacturing costs |
360 |
| Markup (60%) |
216 |
| Targeted selling price |
$576 |
Silver Lake Cabinets has excess capacity. Ms. Zhang wants the cabinets in cherry rather than oak, so direct material costs will increase by $30 per unit.
Required:
a. For Silver Lake Cabinets, what is the minimum acceptable price of this one-time-only special order?
b. Other than price, what other items should Silver Lake Cabinets consider before accepting this one-time-only special order?
c. How would the analysis differ if there was limited capacity?