Sophia's Shoes produces leather shoes sold to retail chains for $75 each. The plant capacity is...
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Accounting
Sophia's Shoes produces leather shoes sold to retail chains for $75 each. The plant capacity is 300,000 pairs annually, but normal volume is 200,000 pairs. Unit and total costs at normal volume are as follows:
Type of Cost
Unit Costs
Total Costs
Direct materials
$20.00
$4,000,000
Direct labor
$15.00
$3,000,000
Manufacturing support
$25.00
$5,000,000
Selling and administrative
$10.00
$2,000,000
Total costs
$70.00
$14,000,000
Fixed manufacturing support costs are $3,500,000, and fixed selling and administrative costs are $1,500,000.
A prospective customer offers to purchase 50,000 pairs at $60 each, with simplified packaging reducing variable selling and administrative costs by 40%.
Required: Assess if Sophia's Shoes should accept the special order. Prepare a detailed profit impact statement to justify your decision.
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