The Wade Corporation has the capacityto produce 10,000 units per year. Its predicted operations for theyear are as follows:
Sales (8,000 units @ $25each) $200,000
Manufacturing costs:
Variable $8 per unit
Fixed $50,000
Marketing and administrativecosts:
Variable $1 per unit
Fixed $15,000
The accounting department has preparedthe following projected income statement for the coming year for your use in makingdecisions.
Sales $200,000
Variable costs:
Manufacturing ($8 x8,000) $64,000
Marketing ($1 x8,000) 8,000 72000
Contributionmargin $128,000
Fixed costs:
Manufacturing $50,000
Marketing 15,000 65,000
Operatingprofit $63,000
Required:
- Should the company accept a special order for500 units at a selling price of $10? Assuming that there are novariable marketing and administrative costs for this order and thatregular sales will not be affected, what is the impact of thisdecision on company profits?
- Suppose there was a one-time setup fee of $2,000 for thepreceding order. Should the special order beaccepted? Why?
- What other factors should be considered and how wouldthey impact your decision to accept the specialorder?
