Special order decisions McPhail Company sells office furniture and supplies. Recently the business manager of a school system offered to buy 100 oak bookcases for school libraries at $200 each. The normal price of the bookshelves is $290. The bookcases are purchased unfinished from the manufacturer. Company employees stain and seal the bookcases before they are sold to customers. This year sales have been slow because of high interest rates and a sluggish economy. The sales manager asks the chief accountant to prepare cost data relevant to the analysis. The accountant provides the following:

The accountant provided the following explanation of the cost data:
1. About 20 percent of the applied overhead is variable cost.
2. Sales commissions are a straight 10 percent of the selling price.
3. To help assess the profitability of products, management assigns administrative costs to products at the rate of 10 percent of selling price. Ten percent of the administrative costs are variable.

Transcribed Image Text:

Cost of unfinished bookshelves $130.00 Finishing material 24.00 Finishing labor 25.00 Applied overhead for finishing activity... 20.00 Sales commissions ... 29.00 Administrative costs 29.00 $257.00