Should lanam accept this special order

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Reference no: EM131868035

Lanam Co. has been producing and selling 10,000 units per month, with the following total costs:

Direct materials............................................... $20,000

Direct labor..................................................... 35,000

Manufacturing overhead: Variable ................. 15,000

Fixed ................. 24,000

Selling expenses: Variable.............................. 10,000

Fixed.................................. 13,000

The normal selling price is $15 per unit. The company has received an offer from a special customer who would like to buy exactly 5,000 units of product for $9 per unit. This special order would incur none of the usual variable selling expenses. Additional administrative expenses specifically related to this special order would be $1,500.

Required:

a) Suppose plant capacity is 18,000 units. Should Lanam accept this special order?

b) Suppose plant capacity is 13,000 units. Should Lanam accept this special order?

Reference no: EM131868035

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