Reference no: EM133081529

Question - DALA Electronic Corporation ("DALA") makes a range of products. Management is considering a special order from a well-known household name for purchasing 200 units of product SX at $125 each. The normal selling price of product SX is $152 and the unit product cost is determined as follows:

Direct materials 70

Direct labor 32

Variable manufacturing overhead cost 14.4

Fixed manufacturing overhead cost 30.4

Unit product cost 146.8

If the special order were accepted, normal sales of this and other products would not be affected. The company has ample excess capacity to produce the additional units. Assume that direct labor is a variable cost, and total fixed manufacturing overhead would not be affected by the special order.

Required -

a. Should the company accept the special order or not? Please provide supporting calculations.

b. All the information in the problem holds true except that the company only has access capacity of 100 units. In hoping to gain big and regular orders from this well-known household name company, DALA decides to sacrifice 100 units of sale to the existing customers to accommodate this special sale. What would be the impact on DALA's overall profits?