Reference no: EM132559173

ABC Inc., has been offered $35 for 1,000 summer-weight sleeping bags by a discount store. XYZ normally sells the bag for $47.50. The costs of the bag have been determined to be as follows:

Materials.................................... $15.00

Labor.......................................... 7.50

Variable overhead..................... 5.00

Fixed overhead.......................... 15.00

Total....................................... $42.50

Required:

Question 1. If XYZ has excess capacity in its production line and has no alternative use for the space that is idle, should the special order be accepted? Explain your views.

Question 2. Assume that XYZ is operating at full capacity. Should the order be accepted? Explain your views.