Exercise 8-41 Special Order

Refer to the information for Smooth Move Company on the previous page. Suppose a customer wants to have its company logo affixed to each paperweight using a label. Smooth Move would have to purchase a special logo labeling machine that will cost $12,000. The machine will be able to label the 15,000 units and then it will be scrapped (with no further value). No other fixed overhead activities will be incurred. In addition, each special logo requires additional direct materials of $0.20.

Direct materials $3.10 Direct labor 2.25 Variable overhead 1.15 Fixed overhead 1.80

Total $8.30

Required:

CONCEPTUAL CONNECTION Should Smooth Move accept the special order? By how much will profit increase or decrease if the order is accepted?