12-3B Special Order

Eversharp is a knife manufacturer. The company normally sells 5,000 sets of high quality knives each year and, with its current staff and machinery, has the capacity to produce up to 6,000 sets of knives. At this level of output, the company estimates its costs of producing and selling one set of knives as follows:

	Per unit
Direct materials	$5.00
Direct labour	1.50
Variable manufacturing overhead	1.00
Fixed manufacturing overhead	2.00
Sales commissions	1.50
Fixed selling and administrative expenses	4.00
Total costs	$15.00

The companys selling price is $20 per unit. An order has been received for 500 units, but because its a bulk purchase, the buyer has requested a 40% price discount. If the order were accepted it would not affect the companys regular sales. There would be no sales commissions on this deal, and fixed costs would not be affected. The purchasing company would like their logo engraved into the handle of each knife, which would increase labour costs by $0.25 per unit and require the purchase of a new machine for $2,000.

Required

Determine the net dollar advantage or disadvantage of accepting the order

Complete the above question using the below template: