Emma's Electronics produces smart home devices sold to tech stores for $150 each. The plant capacity...
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Accounting
Emma's Electronics produces smart home devices sold to tech stores for $150 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
$45.00
$6,750,000
Direct labor
$30.00
$4,500,000
Manufacturing support
$40.00
$6,000,000
Selling and administrative
$20.00
$3,000,000
Total costs
$135.00
$20,250,000
Fixed manufacturing support costs are $4,000,000, and fixed selling and administrative costs are $1,500,000.
A prospective customer offers to purchase 40,000 units at $120 each, with special packaging reducing variable selling and administrative costs by 30%.
Required: Determine whether Emma's Electronics should accept this special order. Conduct a marginal cost analysis to justify your recommendation.
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