Reference no: EM133115069

Question - Esco Pty Ltd has a maximum capacity to produce 17,000 soap dispensers per month. The unit cost is as follows:

Direct material cost: $4.25

Direct Labour cost: $3.50

Fixed Manufacturing overhead: $3

Variable manufacturing overhead: $1.20

Currently Esco Pty Ltd produces and sells 15,000 units of soap dispensers to its regular customers for $15, Bed and Bath Limited has approached Esco Pty Ltd with a business proposal to supply them with 2 000 soap dispensers at a special price of $11 per unit.

Required -

1. Should Esco Pty. Ltd. accept this business proposal? Show all calculations.

2. If the business proposal is for 10 000 units, should it be accepted? Show all calculations.

3. What other strategic issues should be considered in making the decisions whether to accept or reject a special order.