Analyzing Special-Order Decision
Sunblocker Corp. makes several varieties of beach umbrellas and accessories. It has been approached about producing a special order for custom umbrellas. The special-order umbrellas with the Randolph Industries logo would be distributed to participants at an upcoming convention sponsored by Randolph.
Randolph has offered to buy 1,500 of the No-More-Squint (NMS) umbrellas at a price of $8 each. Sunblocker currently has the excess capacity necessary to accept the offer. The following information is related to the production of the NMS umbrella:
Direct materials | $ 2.25 |
Direct labor | 0.75 |
Variable manufacturing overhead | 3.50 |
Fixed manufacturing overhead | 2.50 |
Total cost | $ 9.00 |
Regular sales price | $19.00 |
Required:
1.Determine the impact this special order would have on Sunblocker’s total profit.
2.Should Sunblocker accept the special order?
3.Suppose that the special offer had been to purchase 2,000 umbrellas for $7.50 each. What effect would the offer have on Sunblocker’s total profit?
4. Assume that Sunblocker is operating at full capacity. Determine the special-order price per unit at which Sunblocker would be indifferent to accepting the special order.
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