Adelphi Company has an annual production capacity of 22, 000 chairs. The costs a

Question

Adelphi Company has an annual production capacity of 22, 000 chairs. The costs associated with production and sale of the company's product are given below: Variable manufacturing cost per unit: $I 5 Fixed manufacturing cost in total: $165,000 Variable selling cost per unit: $10 Fixed selling and administration cost in total: $1 10,000 The company presently is selling 19,000 chairs annually at a selling price of $40 cache. A special order has been received from a distributor who wants to purchase 3,000 chair at a special price of $24 each. Regular sales would not be affected by this order and the order could be filled without any impact on total fixed costs. Variable selling cost per unit on the special order would be reduced by 40%. Required: Determine whether the company should accept the special order.

Explanation / Answer

Yes should accept the special order

Revenue (3000*24) $72,000 Less:Variable costs         Manufacturing cost 3000*15 ($45,000)        Selling cost (3000*10@60%) $(18,000) Increase in profit $9,000

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