Lybrand Company is a leading manufacturer of sunglasses. One of Lybrand's products protects the eyes from ultraviolet rays. An upscale sporting goods store has contacted Lybrand about purchasing 15,000 pairs of these sunglasses. Lybrand's unit manufacturing cost, based on a full capacity of 100,000 units, is as follows:
|
Direct materials
Direct labor
Fixed overhead
Variable overhead
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$6 per unit
$ 4per unit
$ 9per unit
$ 6per unit
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Lybrand also incurs selling and administrative costs of $75,000 fixed costs plus $2 per pair for sales commissions. The company has plenty of excess manufacturing capacity to use in making the sunglasses. Lybrand's normal price for these sunglasses is $40 per pair. The sporting goods store has offered to pay $35 per pair. Since the special order was initiated by the sporting goods store, no sales commission will be paid.
a) Should Lybrand Company accept the offer? Be sure to show your computations in arriving at your answer.
b) What qualitative factors should be considered in making your decision?