Alex Company produces a single product. The cost of producing and selling a single

unit of this product at the company's normal activity level of 70,000 units per month is as

follows:

The normal selling price of the product is $56.70 per unit. An order has been received

from an overseas customer for 2,000 units to be delivered this month at a special

discounted price. This order would have no effect on the company's normal sales and

would not change the total amount of the company's fixed costs. The variable selling and

administrative expense would be $0.70 less per unit on this order than on normal sales.

Direct labor is a variable cost in this company.

Instructions

a. Suppose there is enough idle capacity to produce the units required by the overseas

customer and the special discounted price on the special order is $51.20 per unit. Should

Alex accept the offer?

b. Suppose there is not enough idle capacity to produce all of the units for the overseas

customer and accepting the special order would require cutting back on production of 700

units for regular customers. Should Alex accept the offer?