Reference no: EM133093165

Question - Costa Chemicals Company produces and sells its only product MP-200 that is used to manufacture other products. A company from Mexico has approached Costa to purchase 20,000 units of MP-200 for $14.00 each. Selling to Mexico will not affect the company's other customers in Canada. Costa's production capacity is 140,000 units per year but can only sell 120,000 units to regular customers. Exporting the product to Mexico will require a further packaging cost of $0.35 per unit. The normal sales price is $22 per unit. Unit cost information for the normal level of activity is as follows:

Direct materials $5.20

Direct labour 4.10

Variable overhead 3.65

Fixed overhead 3.00

Total cost per unit $15.95

Required -

A) What are the relevant costs and benefits of this special order.

B) Will operating income increase or decrease if the order from this new customer is accepted - if so, by how much?

C) Would your answer change if the minimum amount of this new customer's order was 25,000 units and why?