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Problem 2 Lorraine manufactures a single product with the following full unit costs...

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Question

Accounting

Problem 2

Lorraine manufactures a single product with the following full unit costs for 3,000 units:

Direct materials

$80

Direct labor

40

Manufacturing overhead (40% variable)

120

Selling expenses (60% variable)

40

Administrative expenses (10% variable)

20

Total per unit

$300

A company recently approached Lorraine with a special order to purchase 500 units for $300. Lorraine currently sells the models to dealers for $550. Capacity is sufficient to produce an extra 450 units. No selling expenses would be incurred on the special order.

Required:

Should Lorraine accept the special order? Determine the impact on profit of accepting the order.

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