Karen's Kitchenware produces kitchen utensils sold to department stores for $10 each. The plant capacity is...
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Accounting
Karen's Kitchenware produces kitchen utensils sold to department stores for $10 each. The plant capacity is 1,500,000 units annually, but the normal volume is 1,000,000 units. Unit and total costs at normal volume are:
Type of Cost
Unit Costs
Total Costs
Direct materials
$3.00
$3,000,000
Direct labor
$2.00
$2,000,000
Manufacturing support
$3.00
$3,000,000
Selling and administrative
$1.50
$1,500,000
Total costs
$9.50
$9,500,000
Fixed manufacturing support costs are $2,500,000, and fixed selling and administrative costs are $1,000,000.
A wholesale customer offers to purchase 200,000 units at $8 each, with simplified packaging reducing variable selling and administrative costs by 60%.
Required: Evaluate if Karen's Kitchenware should accept the special order. Prepare a cost-volume-profit analysis to support your decision.
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