Total cost data follow for Greenfield Manufacturing Company, which has a normal capacity per period of 20,000 units of product that sell for \($54\) each. For the foreseeable future, regular sales volume should continue to equal normal capacity.

Notes:
1. Beyond normal capacity, fixed overhead costs increase \($4,500\) for each 1,000 units or fraction thereof until a maximum capacity of 24,000 units is reached.
2. Selling expenses consist of a 10% sales commission and shipping costs of \($1\) per unit. Greenfield pays only one-half of the regular sales commission rates on sales amounting to \($3,000\) or more.
Greenfield’s sales manager has received a special order for 2,500 units from a large discount chain at a price of \($44\) each, F.O.B. factory. The controller’s office has furnished the following additional cost data related to the special order:
1. Changes in the product’s design will reduce direct materials costs by \($4\) per unit.
2. Special processing will add 10% to the per-unit direct labor costs.
3. Variable overhead will continue at the same proportion of direct labor costs.
4. Other costs should not be affected.
Required

a. Present an analysis supporting a decision to accept or reject the special order.

b. What is the lowest price Greenfield could receive and still make a profit of \($5,000\) before income taxes on the special order?

c. What general qualitative factors should Greenfield consider?

Transcribed Image Text:

Direct materials. $266,800 Direct labor.. 200,000 Variable manufacturing overhead. 152,000 Fixed manufacturing overhead (Note 1). 118,800 Selling expense (Note 2) 129,600 Administrative expense (fixed) 50,000 $917,200