AA Company manufactures soft drinks. Its manufacturing plant has the capacity to produce 15,000 cases each month; current production and sales are 5,500 cases per month. The company normally charges $50 per case. Cost information for the activity level is as follows:

Direct materials ---------------------------------------------$ 162,500

Direct manufacturing labour -------------------------------- 200,000

Variable costs (for setups, materials handling,

quality control,that vary with number of batches, 50 batches x $50 per batch ---------------------------------------55,000

Fixed manufacturing costs ------------------------------------175,000

Fixed marketing costs -----------------------------------------75,000

Total costs ---------------------------------------------------$ 187,500

Gamma Company has just received a special one-time-only order for 200 cases at $10 per case. Gamma Company usually makes its soft drinks for its existing customers in batch sizes of 5 case (15 batches x 5 cases per batch = 75 cases). The special order requires them to make the cases in 5 batches of 100 each. Required:

(a) Is there anyway AA Company should accept this special order? Why? Explain concisely based on your answer.

(b) Suppose plant capacity was only 10,000 cases instead of 15,000 cases each month. The special order must either be taken in full or rejected totally. Is there anyway AA Company shuld accept the special order?

(c) As stated in question (a) above assume that monthly capacity is 15,000 cases. AA is concerned that if it accepts the special order, its existing customers will immediately demand a price discount of $10 in the month in which the special order is being filled. They would argue that AA Company capacity costs are now being spread over more units, and that existing customers should get the benefit of these lower costs. Is there anyway that AA Company should accept the special order under these conditions? Show all calculations