Question

Special-Order Decision Smooth Move Company manufactures professional paperweights and has been approached by a new customer with an offer to purchase 15,000 units at a per-unit price of $9.00. The new customer is geographically separated from Smooth Move's other customers, and existing sales will not be affected. Smooth Move normally produces 88,000 units but plans to produce and sell only 65,000 in the coming year. The normal sales price is $16 per unit. Unit cost information is as follows: Direct materials $3.10 Direct labour 2.50 Variable overhead 1.15 Fixed overhead 1.80 Total $8.55 If Smooth Move accepts the order, no fixed manufacturing activities will be affected because there is sufficient excess capacity. Required: 1. What are the alternatives for Smooth Move? 2. Conceptual Connection: Should Smooth Move accept the special order? By how much will profit increase or decrease if the order is accepted?

Answer 1

1) special order alternative
2) smooth move should accept the special order
particulars				amount
sale (15000*9)				135000
less: direct material (15000*3.10)				46500
less:direct labor (15000*2.50)				37500
less:variable overhead (15000*1.15)				17250
net profit				33750
if order is accepted profit will increase by $33750

Please give a thumbs up if it is helpful & let me know if any doubt