Anna's Appliances produces kitchen appliances sold to retailers for $500 each. The plant capacity is 200,000...
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Accounting
Anna's Appliances produces kitchen appliances sold to retailers for $500 each. The plant capacity is 200,000 units annually, but normal volume is 150,000 units. Unit and total costs at normal volume are:
Type of Cost
Unit Costs
Total Costs
Direct materials
$150.00
$22,500,000
Direct labor
$100.00
$15,000,000
Manufacturing support
$120.00
$18,000,000
Selling and administrative
$80.00
$12,000,000
Total costs
$450.00
$67,500,000
Fixed manufacturing support costs are $12,000,000, and fixed selling and administrative costs are $6,000,000.
A prospective customer offers to purchase 30,000 units at $400 each, with simplified packaging reducing variable selling and administrative costs by 30%.
Required: Determine whether Anna's Appliances should accept this special order. Conduct a break-even analysis to justify your recommendation.
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