Reference no: EM132715059

Charleston Ltd. manufactures school desks. The company's forecasted income statement for the year, before any special orders, is as follows:

                                         Amount             Per unit
Sales                           $ 30,000                 $20
Cost of goods sold           24,000                  16
Gross profit                     6,000                  4
Selling expenses              4,500                  3
Net operating income        1,500                1

Fixed costs in the forecasted income statement are $13,500 in manufacturing and $2,700 in selling. The company has capacity to produce 2,000 units, but has received a special order for 800 units at $15 from an overseas company, and would have to replace some of its regular business to accept it. Charleston will incur an additional $3 per unit in shipping should they accept the offer.

Question 1. Calculate Charleston's current contribution margin per unit.

Question 2. Should Charleston accept the special order for 800 units?

Question 3. Assume the special order had the same terms, but was for 300 units. Should Charleston accept it?