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Mohave Corporation makes several varieties of beach umbrellas and accessories. It has been approached by...

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Accounting

Mohave Corporation makes several varieties of beach umbrellas and accessories. It has been approached by a company called Lost Mine Industries about producing a special order for a custom umbrella called the Ultimate Shade (US). The special-order umbrellas with the Lost Mine Company logo would be distributed to participants at an upcoming convention sponsored by Lost Mine.

Lost Mine offered to buy 3,100 US umbrellas at a price of $32 each. Mohave currently has the excess capacity necessary to accept the offer. The following information is related to the production of the US umbrella:

Direct materials $ 13.00
Direct labor 7.00
Variable manufacturing overhead 9.00
Fixed manufacturing overhead 2.50
Total cost $ 31.50
Regular sales price $ 40.00

Required:

  1. Compute the incremental profit (or loss) from accepting the special order.
  2. Should Mohave accept the special order?
  3. Suppose the special order had been to purchase 3,600 umbrellas for $28.00 each. Recompute the incremental profit (or loss) from accepting the special order under this scenario.
  4. Assume Mohave is operating at full capacity. Calculate the special-order price per unit at which Mohave would be indifferent between accepting or rejecting the special order.
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