Analyzing a Special-Order Decision
Woodchuck Corp. makes several varieties of wooden furniture. It has been approached about producing a special order for rocking chairs. A local senior citizens group would use the special-order chairs in a newly remodeled activity center.
The senior citizens have offered to buy 80 of the Rock-On chairs at a price of $70 each. Woodchuck currently has the excess capacity necessary to accept the offer. A summary of the information related to production of Woodchuck’s Rock-On model follows:
Direct materials | $30 |
Direct labor | 20 |
Variable manufacturing overhead | 12 |
Fixed manufacturing overhead | 11 |
Total cost | $73 |
Regular sales price | $99 |
Required:
1.What impact would this special order have on Woodchuck’s total profit?
2.Should Woodchuck accept the special order?
3.Suppose that the special offer had been to purchase 100 rocking chairs for $65 each. What effect would that offer have on Woodchuck’s total profit?
4.Assume Woodchuck is operating at full capacity. Determine the special-order price per unit at which Woodchuck would be indifferent to accepting the special order.
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