Special order decision
Issa Company manufactures a personal computer designed for use in schools and markets it under its own label. Issa has the capacity to produce 25,000 units a year but is currently producing and selling only 15,000 units a year. The computer’s normal selling price is $1,600 per unit with no volume discounts. The unit-level costs of the computer’s production are $600 for direct materials, $300 for direct labor, and $120 for indirect unit-level manufacturing costs. The total product- and facility-level costs incurred by Issa during the year are expected to be $2,100,000 and $800,000, respectively. Assume that Issa receives a special order to produce and sell 3,000 computers at $1,200 each.
Required
Should Issa accept or reject the special order? Support your answer with appropriate computations.
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