Effect of order quantity on special order decision
Ellis Quilting Company makes blankets that it markets through a variety of department stores. It makes the blankets in batches of 1,000 units. Ellis made 20,000 blankets during the prior accounting period. The cost of producing the blankets is summarized here.
Materials cost ($25 per unit × 20,000) | $ 500,000 |
Labor cost ($22 per unit × 20,000) | 440,000 |
Manufacturing supplies ($2 × 20,000) | 40,000 |
Batch-level costs (20 batches at $4,000 per batch) | 80,000 |
Product-level costs | 160,000 |
Facility-level costs | 290,000 |
Total costs | $1,510,000 |
Cost per unit = $1,510,000 ÷ 20,000 = $75.50 |
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Required
a.Kent Motels has offered to buy a batch of 500 blankets for $56 each. Ellis’s normal selling price is $90 per unit. Based on the preceding quantitative data, should Ellis accept the special order? Support your answer with appropriate computations.
b. Would your answer to Requirement a change if Kent offered to buy a batch of 1,000 blankets for $56 per unit? Support your answer with appropriate computations.
c. Describe the qualitative factors that Ellis Quilting Company should consider before accepting a special order to sell blankets to Kent Motels.
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