Reference no: EM132872357

Question - Digital Devices, Inc. has received a special order to manufacture 10,000 CD ROM drives for an Italian computer manufacturer. Digital determines that the order will not affect its current domestic sales of CD ROM drives and because of the special nature of the order no sales commission would be paid. However, to process the order for export, an additional handling cost of $10 per unit is estimated. The order indicates that the price of the drives cannot exceed $200.

The company has the capacity to produce 100,000 units annually but is currently operating at 75% of available capacity. Unit selling price and costs, based on estimated actual capacity being utilized, are as follows:

Selling price $260

Expenses:

Direct materials $80

Direct labor 40

Variable manufacturing overhead 50

Fixed manufacturing overhead 30

Sales commission 26

Fixed administrative expenses 8

Total $234

Required - Prepare a relevant cost analysis showing the effect on profit if the company accepts the special order.