Should eye-on-world have accepted the special order

Assignment Help Managerial Accounting

Reference no: EM13903188

Special order with no lost sales. Eye-on-World, Inc., has a capacity of 200,000 computer monitors per year. The company is currently producing and selling 160,000 monitors per year at a selling price of $400 per monitor. The cost of producing and selling one monitor at the 160,000-unit level of activity follows:

Variable Manufacturing Costs	$160
Fixed Manufacturing Costs	40
Variable Selling and Administrative Costs	80
Fixed Selling and Administrative Costs	20
Total Costs	$300

The company has received a special order for 10,000 monitors at a price of $250 per monitor. Because it need not pay a sales commission on the special order, the variable selling and administrative costs would be only $50 per monitor. The special order would have no effect on total fixed costs. The company has rejected the offer based on the following computations:

Selling Price per Monitor	$250
Variable Manufacturing Costs	160
Fixed Manufacturing Costs	40
Variable Selling and Administrative Costs	50
Fixed Selling and Administrative Costs	20
Net Loss per Monitor	$(20)

Management is reviewing its decision and wants your advice. Should Eye-on-World have accepted the special order? Show your computations.

Reference no: EM13903188

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