Anna's Apparel produces sportswear sold to retail stores for $40 each. The plant capacity is 500,000...
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Accounting
Anna's Apparel produces sportswear sold to retail stores for $40 each. The plant capacity is 500,000 units annually, but normal volume is 400,000 units. Unit and total costs at normal volume are:
Type of Cost
Unit Costs
Total Costs
Direct materials
$10.00
$4,000,000
Direct labor
$8.00
$3,200,000
Manufacturing support
$7.00
$2,800,000
Selling and administrative
$5.00
$2,000,000
Total costs
$30.00
$12,000,000
Fixed manufacturing support costs are $3,000,000, and fixed selling and administrative costs are $1,500,000.
A potential customer offers to purchase 100,000 units at $30 each, with special packaging reducing variable selling and administrative costs by 40%.
Required: Determine whether Anna's Apparel should accept this special order. Prepare a cost-benefit analysis to justify your recommendation.
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