ABC Inc., has been offered $35 for 1,000 summer-weight sleeping bags by a discount store. XYZ normally sells the bag for $47.50. The costs of the bag have been determined to be as follows:

Materials....................................$15.00

Labor..........................................7.50

Variable overhead.....................5.00

Fixed overhead..........................15.00

Total.......................................$42.50

Required:

1.If XYZ has excess capacity in its production line and has no alternative use for the space that is idle, should the special order be accepted? Explain your views. [3 marks]

2.Assume that XYZ is operating at full capacity. Should the order be accepted? Explain your views. [2 marks]