Brian's Bikes produces bicycles sold to sports stores for $200 each. The plant capacity is 100,000...
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Accounting
Brian's Bikes produces bicycles sold to sports stores for $200 each. The plant capacity is 100,000 units annually, but normal volume is 80,000 units. Unit and total costs at normal volume are:
Type of Cost
Unit Costs
Total Costs
Direct materials
$60.00
$4,800,000
Direct labor
$30.00
$2,400,000
Manufacturing support
$50.00
$4,000,000
Selling and administrative
$20.00
$1,600,000
Total costs
$160.00
$12,800,000
Fixed manufacturing support costs are $2,500,000, and fixed selling and administrative costs are $1,000,000.
A potential customer offers to buy 25,000 units at $150 each, requiring minimal packaging and reducing variable selling and administrative costs by 50%.
Required: Determine whether Brian's Bikes should accept this special order. Conduct a differential analysis to justify your decision.
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