Waterloo Co. sells product P-14 at a price of $48 a unit. Theper-unit cost data are direct materials $15, direct labour $10, andoverhead $12 (75% variable). Waterloo Co. has sufficient capacityto accept a special order for 40,000 units, but at a discount of10% from the regular price. Selling costs associated with thisorder would be $3 per unit. There are no selling costs on itsregular orders.
a) Should Waterloo Co. should accept the special order? Showyour calculations.
b) Assume the same information as part a) except that Waterloohas no excess capacity. Indicate the net income (loss) thatWaterloo would realize by accepting the special order.
c) Assume the information in part b) except that the companycould rent the special purpose machine that is required for thisorder for $100,000. This would allow the company to fulfill itsregular orders and this special order on a one time basis.
1. Should the company go ahead and rent this machine and acceptthe special order?
2. What is the highest price the company can afford to pay torent the machine to be indifferent as to whether to accept thespecial order or not. d) List two qualitative considerations thatmanagement should consider in deciding whether to accept this offerbeyond its immediate impact on profits.
d. List two qualitative considerations that management shouldconsider in deciding whether to accept this offer beyond itsimmediate impact on profits.
