Lanam Co. has been producing and selling 10,000 units per month, with the follow
ID: 2417057 • Letter: L
Question
Lanam Co. has been producing and selling 10,000 units per month, with the following total costs:
Direct materials............................................... $20,000 Direct labor..................................................... 35,000 Manufacturing overhead: Variable ................. 15,000
Fixed ................. 24,000 Selling expenses: Variable.............................. 10,000 Fixed.................................. 13,000
The normal selling price is $15 per unit. The company has received an offer from a special customer who would like to buy exactly 5,000 units of product for $9 per unit. This special order would incur none of the usual variable selling expenses. Additional administrative expenses specifically related to this special order would be $1,500.
Required:
a) Suppose plant capacity is 18,000 units. Should Lanam accept this special order?
b) Suppose plant capacity is 13,000 units. Should Lanam accept this special order?
Explanation / Answer
a) Suppose plant capacity is 18,000 units. Should Lanam accept this special order?
Accept the offer
b) Suppose plant capacity is 13,000 units. Should Lanam accept this special order?
Should not accept the offer
Direct MateriAL 2 Labor 3.5 Manufacturing overhead 1.5 Selling Expesne 1 Total Variable Cost 8Related Questions
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