Reference no: EM133088142

Question - Yellow Moon Corporation manufactures sleeping bags; the selling price of the regular product is $180, while the manufacturing costs per unit were as follows:

Details	Per unit	1,000 units
Direct materials	90	90,000
Direct labor	30	30,000
Manufacturing overhead 60% variable	15	15,000
Fixed selling costs	20	20,000
Total	155	155,000

Yellow Moon Corporation received a special order to manufacture 300 sleeping bags for $140 per unit.

These sleeping bags require special materials that will cost less $8 per unit; labor cost for these sleeping bags will remain the same.

Fixed selling costs represents the cost of Yellow Moon Corporation's annual advertising campaign.

The current equipment is working in full capacity, accordingly accepting the special order will require buying new equipment that will cost $6,500. This equipment will not be used for increasing production capacity for Yellow Moon Corporation.

Required -

1. Should the special order be accepted? Show your computations.

2. If your recommendation was not to accept the special order; what will be the minimum price per unit for special order to be accepted based on CM ratio of original product?