The Cool Can Company manufactures drink koozies and has been approached by a new customer with an
Question:
The Cool Can Company manufactures drink koozies and has been approached by a new customer with an offer to purchase 15,000 units at a per-unit price of $7.00. The new customer is geographically separated from Cool Can’s other customers, and existing sales will not be affected. Cool Can normally produces 82,000 units but plans to produce and sell only 65,000 in the coming year. The normal sales price is $12 per unit. Unit cost information is as follows:
In addition, assume that the new customer also wants to have its company logo affixed to each koozie using a label. Cool Can would have to purchase a special logo labeling machine that will cost $12,000. The machine will be able to label the 15,000 units and then it will be scrapped (with no further value). No other fixed overhead activities will be incurred. In addition, each special logo requires additional direct materials of $0.20.
Required:
Should Cool Can accept the special order? By how much will operating income increase or decrease if the order is accepted?
Transcribed Image Text:
Direct materials
Direct labor
Variable overhead
Fixed overhead
Total
$3.10
1.50
1.00
1.80
$7.40
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