Special Order (LO1, 2, 3)

Shanghai Exporters, LTD produces wall mounts for flat panel television sets. The forecasted income statement for 2012 is as follows:

SHANGHAI EXPORTERS, LTD Budgeted Income Statement For the Year 2012 SBS (HAH OE UININS Boos otocomd oae uceeco ce $4,400,000 Cost of good sold ($32 per unit)............... (3,200,000)

(ChOSS MOUS «oaks eee REY Ore oc Ss 5.0 1,200,000 Selling expenses ($3 per unit) ................ (300,000)

NEEIMCONDES eet ntasca cist aN Shee See $ 900,000 Additional Information

(1) Of the production costs and selling expenses, $800,000 and $100,000, respectively, are fixed. (2)

Shanghai Exporters, LTD received a special order from a hospital supply company offering to buy 12,500 wall mounts for $30. If it accepts the order, there will be no additional selling expenses, and there is currently sufficient excess capacity to fill the order. The company’s sales manager argues for rejecting the order because “we are not in the business of paying $32 to make a product to sell for $30.”

Required Do you think the company should accept the special order? Should the decision be based only on the profitability of the sale, or are there other issues that Shanghai should consider? Explain.