Reference no: EM132574898

Covella mass produces a special valve that it normally sells for$3.90. It sells approximately 35,000 of these valves units each year.

The variable costs for each valve are $2.30. A company in South Trinidad that has been unable to produce enough of a similar connector to meet customer demand, would like to buy 15,000 of these valve at $2.60 per unit.

The production of these valves is near full capacity at Covella, so to accept the offer from the company I South, it would require temporarily adding another shift to it's production line.

By doing such, this would increase variable manufacturing costs by $0.30 per unit. However, variable selling costs would be reduced by $0.20 a valve. Another company has asked for a special order of 2,000 of the valves. To meet this special order, Covella would not need an additional shift, and the other company is willing to pay$3.10 per unit.

Question (1) What are the consequences of Covella agreeing to provide the 15,000; valves to the southern company? Would this be a wise"special order" to accept?

Question (2) Should Covella accept the special order from the other company.

Question (3) What would be the consequences of accepting both special Orders?