Making a decision about special pricing. The Fisher Company produces a compressor used in automobile air conditioning units. Annual production totals 100,000 units, each of which regularly sells for $40. The standard cost sheet data is shown on page 516. Nonmanufacturing costs are $4 per unit for variable costs and $5 per unit for fixed costs.

A foreign manufacturer needs 10,000 units and offers $24 per unit plus shipping costs. The sales manager is opposed to accepting the $24 price. He says: “I know the product will not be sold in the United States where it would compete with our regularly priced goods, but we will lose $.40 on every unit. We will be using some of our idle capacity, but taking a loss like this doesn’t make sense.” The cost accountant replies that it is a good deal and the company should accept the offer.
Instructions 1. Prepare the two special product pricing analyses used by the cost accountant. On the second analysis, round off the figures to thousands of dollars. NOTE: Although the variable manufacturing costs applicable to the units in the special order may be higher or lower than such costs for the standard units, assume that these costs will be the same for all units.
2. Explain whether the special order should be accepted or rejected and why.

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Materials Labor (2 hr x $3.50 per hr) Manufacturing Overhead Variable (1 hr x $3 per hr) Fixed (1 hr x $6.40 per hr) Total Standard Cost per Unit $3.00 6.40 $ 8.00 7.00 9.40 $24.40