Mason's Mattresses produces high-quality mattresses sold to retailers for $400 each. The plant capacity is 200,000...
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Accounting
Mason's Mattresses produces high-quality mattresses sold to retailers for $400 each. The plant capacity is 200,000 units annually, but normal volume is 150,000 units. The unit and total costs at normal volume are as follows:
Type of Cost
Unit Costs
Total Costs
Direct materials
$120.00
$18,000,000
Direct labor
$80.00
$12,000,000
Manufacturing support
$100.00
$15,000,000
Selling and administrative
$60.00
$9,000,000
Total costs
$360.00
$54,000,000
Fixed costs are $5,000,000 for manufacturing support and $2,000,000 for selling and administrative.
A new customer has proposed to purchase 50,000 mattresses at $300 each. The customer requires special packaging, which reduces variable selling and administrative costs by 40%.
Required: Evaluate if Mason's Mattresses should accept the special order. Include a sensitivity analysis to assess the impact of changes in the cost structure.
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