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Special order: At capacity and with idle capacity; analysis Excel

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Special Order - Short Term Decisions

Consider a firm that has a capacity of 100,000 units. They cannot change this capacity in the short run. A potential customer has requested a special order of 10,000 units (one-time order) at a price of $24 each. There is no sales commission on this order since a sales rep was not involved. Their typical selling price is $30 per unit.

Consider the following information, prepared based on a capacity of 100,000 units:
Category Cost per Unit
Variable manufacturing costs $12.00
Fixed manufacturing costs $3.00
Variable selling costs $5.00
Fixed selling costs $2.00

Situation A: Current production is 90,000 units per month. Should the company accept the special order? Make a recommendation and support your conclusion.

Situation B: Assume the same facts as in part a, except that the company is producing 100,000 units per month. Should the company accept the special order? Make a recommendation and support your conclusion.

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Solution Summary

Three schedules are presented in excel to show how to analyze a special order. A few sentences explain the recommendation.

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