David's Desks manufactures office desks sold to corporate clients for $150 each. The plant capacity is...
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David's Desks manufactures office desks sold to corporate clients for $150 each. The plant capacity is 100,000 units annually, but normal volume is 70,000 units. The unit and total costs at normal volume are:
Direct materials: $40.00 per unit; Total: $2,800,000
Direct labor: $30.00 per unit; Total: $2,100,000
Manufacturing support: $40.00 per unit; Total: $2,800,000
Selling and administrative: $20.00 per unit; Total: $1,400,000
Total costs: $130.00 per unit; Total: $9,100,000
Fixed manufacturing support costs are $1,500,000, and fixed selling and administrative costs are $800,000.
A customer offers to buy 30,000 desks at $120 each, with reduced packaging lowering variable selling and administrative costs by 50%.
Required: Determine whether David's Desks should accept this special order. Prepare a differential analysis to justify your decision.
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