Question

QUES 1: In a month, ABC Company normally produces and sells 8,000 units of its product for $20. Variable manufacturing cost per unit is $10. Total fixed manufacturing costs (up to the maximum capacity of 10,000 units) are $38,000. Delivery cost is $1 per unit and fixed operating costs total $10,000.

A customer placed a special order for 1,500 units for $15 each. The customer is willing to shoulder the delivery costs; hence the business will not incur additional variable operating costs.

1. Should the company accept or reject the special order?
2. Assuming that the company normally manufactures and sells 9,000 units instead of 8,000 should the company accept the special order?

QUES 2: The estimated costs of producing 6,000 units of a component are:

	Per Unit	Total
	$	$
Direct Material	10	60,000
Direct Labor	8	48,000
Applied Variable Factory Overhead	9	54,000
Applied Fixed Factory Overhead	12	72,000
	39	234,000

The same component can be purchased from market at a price of $ 29 per unit. If the component is purchased from market, 25% of the fixed factory overhead will be saved.

1. Should the component be purchased from the market?
2. What other qualitative considerations should be made before taking the decision to make or buy the product?