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Issa Company: Should the company accept of reject the specia

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Issa Company manufactures a personal computer designed for use in schools and markets it under its own label. Issa has the capacity to produce 25,000 units a year but is currently producing and selling only 15,000 units a year. The computerââ?¬â?¢s normal selling price is $1,600 per unit with no volume discounts. The unit-level costs of the computerââ?¬â?¢s production are $600 for direct materials, $300 for direct labor, and $120 for indirect unit-level manufacturing costs. The total product- and facility-level costs incurred by Issa during the year are expected to be $2,100,000 and $800,000, respectively. Assume that Issa receives a special order to produce and sell 3,000 computers at $1,200 each.

Required:

Should Issa accept or reject the special order? Support your answer with the appropriate computations.

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Solution Summary

Your tutorial shows you the criteria for accepting special decisions and then computes the incremental profits for the order

Solution Preview

See attached Excel file for calculations.

Yes, Issa should accept the order because the profit per unit of $180 will ...

Solution provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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