(Special order decision) Been Framed produces high-quality picture frames. Each frame is hand-made and hand-finished using the finest materials available. The firm has been operating at capacity for the past 3 years (1,000 frames per year). Based on the capacity level operations, the firm’s costs per frame are as follows:

All selling and administrative expenses incurred by the firm are fixed. The firm has generated an average selling price of $550 for its frames.
Recently, an art gallery approached Sam Spade, the president of Been Framed, about supplying the art gallery with three special frames. These frames would be approximately two times as large as the typical frame the company now makes. Mr. Spade has estimated that the following per-unit costs would be incurred to make the three frames:

To accept the art gallery order, the firm would have to sacrifice production of 25 regular units.

a. Identify all the relevant costs that Mr. Spade should consider in deciding whether he will accept the art gallery’s order.

b. Assume the art gallery offers a total of $3,400 for the three frames. How would Been Framed’s pretax income be affected by the acceptance of this offer?LO1

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Direct material Direct labor Variable overhead Fixed overhead Total cost $125 135 35 60 $355