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Special order: no variable marketing costs. Other factors.

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Consider the following information, prepared based on a capacity of 40,000 units:
Category Cost per Unit
Variable manufacturing costs $5.00
Fixed manufacturing costs $1.50
Variable marketing costs $1.00
Fixed marketing costs $0.50

a) The company is currently producing 30,000 units per month. A potential customer has contacted the firm and offered to purchase 10,000 units this month only. The customer is willing to pay $5.50 per unit. Since the potential customer approached the firm, there will be no variable marketing costs incurred. Should the company accept the special order? Why or why not?

b) Assume the same facts as in part a, except that the company is producing 40,000 units per month. Should the company accept the special order? Why or why not?

c) List and describe other factors should be taken into consideration when deciding whether to accept a special order?

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Solution Summary

Your tutorial is attached in excel with instructional notes, a decision discussion, and four factors to consider.

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