Reference no: EM132720050

The following data relate to Webster Manufacturing, a company that makes picture frames:

Anticipated sales 50,000 units

Normal sales price per unit $10

Variable manufacturing costs per unit $3

Variable selling and administrative expenses per unit $1

Fixed manufacturing costs ($1.50 per unit) $75,000

Fixed selling and administrative expenses ($2.00 per unit) $100,000

Total cost per unit (full absorption) $7.50

The company has the opportunity to take on a one-time special order from McGowan, a customer who wants to buy 10,000 units, but is willing to pay $7 per unit. The special order will not affect the company's fixed costs. Webster has capacity for manufacturing 75,000 units. McGowan is a large retailer with many stores.

Problem 1. Should Webster accept the special order? Why or why not?

Problem 2. Webster's largest customer, Daniels, learns that you charged McGowan less than you charge Daniels for the same item. How do you respond to Daniels?

Problem 3. Does this scenario affect your long-term planning? How? can you do anything about it?

Problem 4. Suppose instead of capacity for 75,000 units, Webster only has capacity for 55,000 units. Does that affect your analysis or decision?