Problem:
Special Order - Short Term Decisions
Consider a firm that has a capacity of 100,000 units. They cannot change this capacity in the short run. A potential customer has requested a special order of 10,000 units (one-time order) at a price of $24 each. There is no sales commission on this order since a sales rep was not involved. Their typical selling price is $30 per unit.
Consider the following information, prepared based on a capacity of 100,000 units:
Category Cost per Unit
Variable manufacturing costs $12.00
Fixed manufacturing costs $3.00
Variable selling costs $5.00
Fixed selling costs $2.00
Situation A: Current production is 90,000 units per month. Should the company accept the special order? Make a recommendation and support your conclusion.
Situation B: Assume the same facts as in part a, except that the company is producing 100,000 units per month. Should the company accept the special order? Make a recommendation and support your conclusion.