Reference no: EM132573838
Walston Company produces kitchen cabinets for homebuilders across the Western United States. The cost of producing 5,000 cabinets is as follows:
Materials $ 500,000
Labor 250,000
Variable overhead 100,000
Fixed overhead 400,000
Total $1,250,000
Walston also incurs selling expenses of $20 per cabinet. Wellington Corp. has offered Walston $165 per cabinet for a special order of 1,000 cabinets. The cabinets would be sold to homebuilders in the Eastern United States and thus would not conflict with Walston's current sales. Selling expenses per cabinet for this special order would only be $5 per cabinet. Watson has available capacity to do the work.
Relevant cost per unit as computed by the Walston's accountant would be as follows:
Materials ($500,000/5,000) $100
Labor (250,000/5,000) 50
Variable Overhead (100,000/5,000) 20
Selling expenses 5
Total relevant cost per unit $175
Question 1: Should Walston accept the special order? Why or why not? What could be a reason that a special order will not be accepted