Loft 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 $50.00
Direct labor 62.50
Variable manufacturing support 30.00
Fixed manufacturing support 37.50
Total manufacturing costs 180.00
Markup (60%) 108.00
Targeted selling price $288.00
Loft Lake Cabinets has excess capacity. Ms. Zhang wants the cabinets in cherry rather than oak, so direct material costs will increase by $15 per unit.
Required:
a. For Loft Lake Cabinets, what is the minimum acceptable price of this one-time-only special order?
b. Other than price, what other items should Loft Lake Cabinets consider before accepting this one-time-only special order?
c. How would the analysis differ if there was limited capacity?