Reference no: EM132714903

Question - ClearSafe Inc. manufactures plexiglass sets to facilitate physical distancing in customer facing posts. Its manufacturing plant has the capacity to produce 12,000 plexiglass sets each month. Current production and sales are 10,000 sets per month. The company normally charges $500 per set. Cost information for the current activity level is as follows:

Variable costs that vary with number of units produced

Direct materials $1,200,000

Direct manufacturing labor 1,400,000

Variable costs (for setups, materials handling, quality control, etc.) that. 300,000 vary with the number of batches, 100 batches x $3,000 per batch)

Fixed manufacturing costs 500,000

Fixed marketing costs 800,000

Total costs $4,200,000

ClearSafe has just received a special one-time-only order for 2,000 counter sets for a large hotel chain at $450 per set. Accepting the special order would not affect the company's regular business or its fixed costs. ClearSafe makes plexiglass sets for its existing customers in batch sizes of 100 sets (100 batches ´ 100 sets per batch = 10,000 sets). The special order requires ClearSafe to make the plexiglass sets in 25 batches of 80 sets.

Required -

1. Should ClearSafe accept this special order? Show your calculations.

2. Suppose plant capacity were only 11,000 sets instead of 12,000 sets each month. The special order must either be taken in full or be rejected completely. Should ClearSafe accept the special order? Show your calculations.

3. As in requirement 1, assume that monthly capacity is 12,000 sets. ClearSafe is concerned that if it accepts the special order, its existing customers will immediately demand a price discount of $40 in the month in which the special order is being filled. They would argue that ClearSafe's capacity costs are now being spread over more units and that existing customers should get the benefit of these lower costs. Should ClearSafe accept the special order under these conditions? Show your calculations.