Over the past few months, Wilson Tech Company produced and sold 10,000 units of Wartex each month. Monthly costs for Wartex are as follows:
Direct materials .............................................................. $ 20,000
Direct labor .................................................................. 35,000
Variable factory overhead ................................................. 10,000
Fixed factory overhead .................................................... 45,000
Variable marketing expenses (shipping and sales commissions) ..... 20,000
Allocated marketing and administrative expenses ..................... 30,000
Total costs ................................................................... $160,000
The normal sales price is $25 per unit. One of the company's salespersons has been negotiating a contract with a prospective customer who has offered to purchase 15,000 units of Wartex for $12.50 per unit. The salesperson does not expect any repeat business from this customer after this sale and does not believe that this sale will affect the normal sales of Wartex. The company has a production capacity sufficient to produce only 15,000 units of Wartex. As a consequence, the company would have to rent additional equipment at a cost of $5,000 and pay overtime in the amount of $10,000 to manufacture the additional quantity of Wartex required.
Required:
Prepare a differential cost analysis showing whether the company should accept this special order.