599 Words3 Pages

We are provided with company's back ground which includes its operating capacity (150,000). Other information that is provided is the monthly operating costs while operating at capacity. It is also given that the brochures are sold at $17 per 100.
The first part details the offer for a special order of 25,000 brochures. The offer is to buy these at $10 instead of the $17, which is the normal price. In order to determine if the special order should be accepted, we have to find the cost of producing 100 brochures and then find the contribution margin. From there we can identify the effects of accepting the special order or rejecting the special order. Produce | 150000 | 100 | Direct Material - V | $6,000.00 | $4.00 | Direct Labor - V | $1,500.00 | $1.00 | Direct Labor - F | $3,000.00 | $2.00 | Manufacturing Overhead - V | $1,500.00 | $1.00 | Manufacturing Overhead - F | $3,375.00 | $2.25 | Marketing - V | $1,500.00 | $1.00 | Marketing - F | $1,875.00 | $1.25 | Corporate - F | $3,750.00 | $2.50 | TOTAL | $22,500.00 | $15.00 | Contribution Margin | $3,000.00 | $2.00 |
Produce | 25000 | | | Sale Price | $10.00 | | | Special Order | Normal | Special Order | Difference | Revenue | $4,250.00 | 2500 | -$1,750.00 | Direct Material - V | $1,000.00 | $1,000.00 | $0.00 | Direct Labor - V | $250.00 | $250.00 | $0.00 | Manufacturing Overhead - V | $250.00 | $250.00 | $0.00 | Marketing - V | $250.00 | $0.00 | -$250.00 | TOTAL | $1,750.00 | $1,500.00 | -$250.00 | Contribution Margin | $2,500.00 | $1,000.00 | -$1,500.00 |
Based on the table above, the special order should be rejected because of the decrease in revenue ($1,500). Fixed costs are not used as they are irrelevant. Although based on numbers it should be rejected, management should take other things into consideration such as the possibility future jobs or goodwill

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