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Jake's Jackets manufactures winter jackets sold to retail stores for $80 each. The plant capacity is...

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Accounting

Jake's Jackets manufactures winter jackets sold to retail stores for $80 each. The plant capacity is 200,000 units annually, but normal volume is 150,000 units. Unit and total costs at normal volume are as follows:

Type of Cost

Unit Costs

Total Costs

Direct materials

$25.00

$3,750,000

Direct labor

$20.00

$3,000,000

Manufacturing support

$15.00

$2,250,000

Selling and administrative

$10.00

$1,500,000

Total costs

$70.00

$10,500,000

Fixed manufacturing support costs are $2,500,000, and fixed selling and administrative costs are $1,000,000.

A potential customer offers to purchase 50,000 units at $60 each, with minimal packaging reducing variable selling and administrative costs by 50%.

Required: Assess if Jake's Jackets should accept the special order. Prepare a variable cost analysis to support your decision.

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