EXERCISE 1: Deco Art Company. produces decorative picture frames. A recent analysis of fixed and variable costs per unit is as follows: Deco Art currently sells each frame for a price of $4.50 each. Wheeler Company has offered to buy 5,000 frames from Deco Art at a price of $2.90 each. Deco Art does not expect to receive any future sales from Wheeler (i.e. one-time special order). Deco Art has the extra capacity to produce the additional frames. Deco Art expects no additional fixed costs to be incurred by accepting the order but the current fixed costs are unavoidable. Following is a cost analysis per unit. To solve this problem: Answer: ACCEPT or DECLINE the order 1) Define the decision 2) Analyze each revenue and cost element for relevancy. The criteria for relevant information is: Does the information occur in the future (i.e. not a sunk cost)? . b. Does the information differ among the alternatives? Relevant cept Unit Yes or No Work Area Decline Revenues $2.90 Variable Costs: Direct Materials 1.26 Direct Labor 0.98 Variable Overhead 0.37 Fixed Overhead 0.84 Contribution to Profit $ Should Deco Art accept the order. Yes or No