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Lily's Lamps manufactures designer lamps sold to furniture stores for $100 each. The plant capacity is...

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Accounting

Lily's Lamps manufactures designer lamps sold to furniture stores for $100 each. The plant capacity is 150,000 units annually, but normal volume is 100,000 units. Unit and total costs at normal volume are:

Type of Cost

Unit Costs

Total Costs

Direct materials

$25.00

$2,500,000

Direct labor

$20.00

$2,000,000

Manufacturing support

$30.00

$3,000,000

Selling and administrative

$15.00

$1,500,000

Total costs

$90.00

$9,000,000

Fixed manufacturing support costs are $2,500,000, and fixed selling and administrative costs are $1,200,000.

A customer offers to buy 30,000 units at $80 each, with reduced packaging lowering variable selling and administrative costs by 50%.

Required: Evaluate if Lily's Lamps should accept the special order. Prepare a financial impact analysis to support your decision.

Answer & Explanation Solved by verified expert
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