David's Desks manufactures office desks sold to corporate clients for $300 each. The plant capacity is...
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Accounting
David's Desks manufactures office desks sold to corporate clients for $300 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:
Type of Cost
Unit Costs
Total Costs
Direct materials
$90.00
$6,300,000
Direct labor
$60.00
$4,200,000
Manufacturing support
$80.00
$5,600,000
Selling and administrative
$40.00
$2,800,000
Total costs
$270.00
$18,900,000
Fixed manufacturing support costs are $5,000,000, and fixed selling and administrative costs are $2,500,000.
A potential customer offers to buy 20,000 units at $250 each, with minimal packaging reducing variable selling and administrative costs by 50%.
Required: Assess if David's Desks should accept the special order. Prepare a variable cost analysis to support your decision.
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