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    Analyzing a special order

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    You are the general manager of a firm that manufactures personal computers. Due to a soft economy, demand for PC's has dropped 50% from the previous year. The sales manager of your company has identified only one potential client, who has received several quotes for 10,000 new PC's. According to the sales manager, the client is willing to pay $650 each for 10,000 new PC's. Your production line is currently idle, so you can easily produce the 10,000 units. The accounting dept. has provided you with the following information about the unit(or average) cost of producing three potential quantities of PC's:

    10,000 PC 15,000 pc 20,000pc
    Materials 500 500 500
    Depreciation 200 150 100
    Labor 100 100 100
    Total Unit cost 800 750 700

    Based on this information, should you accept the offer to produce 10,000 pc's at $650 each? Explain.

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    Solution Preview

    First we look at the irrelevant costs. Material and labor are relevant costs while depreciation is ...

    Solution Summary

    Solution analyzes the effect of a special order on the profitability of the given firm.