I am a bit confused in determining the incremental profit for the production. Do I calculate for 25,000 Lops or do I calculate for 20,000 Lops and then add the cost of the 5,000 Lops for the special order. I have been searching your solution library and could not find an example so that i can follow it. Your solutions are a bit different from this one. I just need to compare my solution with yours as I have an upcoming exam and need to understand this aspect fully.
ACCEPT OR REJECT A SPECIAL ORDER
Reid Company manufactures and sells a single product called a Lop. Operating at capacity the company can produce and sell 30,000 Lops per year. Costs associated with this level of production and sales are given below:
Per unit Total
Direct materials $15 $450,000
Direct labour 8 240,000
Variable manufacturing overhead 3 90,000
Fixed manufacturing overhead 9 270,000
Variable selling expenses 4 120,000
Fixed selling expense 6 180,000
This solution is comprised of a detailed explanation to answer whether should accept or reject special order.