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Should Ariels Treasures accept the special order

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Reference no: EM132571675

Question - At Ariel's Treasures' current activity level of 8,000 units per month, the costs of producing and selling one unit of product are as follows:

Direct materials $5.00

Direct labour 6.00

Manufacturing overhead 10.00

Variable selling and administrative costs 3.00

Fixed selling and administrative costs 4.00

The manufacturing overhead is 90% ?xed and 10% variable. The normal selling price is $26 per unit. An order has been received from a potential customer overseas for 4,000 units at a price of $24.00 per unit.. The company has excess capacity and can handle the special order and accepting this special order will not affect regular sales.

Required -

a. Should Ariel's Treasures accept the special order? (The company's ?xed costs would not change) Show all calculations.

b. If the order is accepted, by how much would the company's monthly pro?ts increase or decrease?

Reference no: EM132571675

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