Reference no: EM132800158
Problem - Magneto Magnet's manufactures magnet's with catchy phrases on them such as "save the drama for your llama". Its manufacturing plant has the capacity to produce 12,000 magnets each month; currant production and sales are 9,000 magnets per month. The company normally charges $200 per magnet. Cost information for the current activity level is as follows:
Variable costs (vary with units produced):
Direct materials $360,000
Direct labour 405,000
Variable costs (vary with number of batches):
Setups, materials handling, quality control 126,000(1)
Fixed manufacturing costs 325,000
Fixed marketing costs 224,000
Total Costs $1,440,000
1. Costs of $126,000 are based on 180 batches at $700 per batch
Magneto Magnet's has just received a special one-time-order for 2,500 magnets at $168 per magnet. These magnets are individual pictures of Marvel's Avenger characters with Black Widow and Scarlet Witch requiring the highest production volume. Accepting the special order would not affect the company's regular business. Magneto Magnets makes magnets for its existing customers in batch sizes of 50 magnets (180 batches x 50 magnets per match = 9,000 magnets). The special order requires Magneto Magnets to make the magnets in 25 batches of 100 each.
Should Magneto Magnets accept this special order? Provide justification by showing the incremental revenues and costs of the special order?