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Should pablito accept the special order

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Reference no: EM133090444

Question - Pablito's manufactures a single product with the following full unit costs for 6,000 units:

Direct materials $160

Direct labor 80

Manufacturing overhead (40% variable) 240

Selling expenses (60% variable) 80

Administrative expenses (10% variable) 40

Total per unit $600

A company recently approached Pablito with a special order to purchase 1,000 units for $575. Pablito currently sells the models to dealers for $1,100. Capacity is sufficient to produce the extra 1,000 units. Since Pablito was approached by the buyer, no selling expenses would be incurred on the special order.

Required -

A) Ignoring the special order, determine Pablito's profit on production and sales of 6,000 units. Ignore taxes in these analyses.

B) Should Pablito accept the special order if its goal is to maximize short-run profits? Determine the impact on profit of accepting the order.

C) When making a special-order decision, what non-quantitative aspects of the decision should Pablito consider?

Reference no: EM133090444

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