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Foster Company manufactures and sells a single product called a Fop. Operating at capacity, the company can produce and sell 28,000 Fops per year. Costs

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Foster Company manufactures and sells a single product called a Fop. Operating at capacity, the company can produce and sell 28,000 Fops per year. Costs associated with that level of production and sales are given below: Unit Total Direct materials $14.50 $ 406,000 Direct labor $8.00 224,000 Variable manufacturing overhead $3.00 84,000 Fixed manufacturing overhead $8.00 224,000 Variable selling expense $6.00 168,000 Fixed selling expense $3.00 84,000 Total cost $42.50 $ 1,190,000 The Fops normally sell for $47 each. Fixed manufacturing overhead is $224,000 per year within the range of 20,000 through 28,000 Fops per year. Required: 1. Assume that due to a recession, Foster Company expects to sell only 22,000 Fops through regular channels next year. A large retail chain has offered to purchase 6,000 Fops if Foster is willing to accept a 20% discount off the regular price. No sales commissions would be paid on this order, resulting in variable selling expenses per unit lower than normal by 40% However, Foster Company would have to purchase a special machine to engrave the retail chain's name on the 6,000 units. This machine would cost $6,000 . Foster Company has no assurance that the retail chain will purchase additional units in the future. What is the financial advantage (disadvantage) of accepting the special order? (11 pts) 2. Assume the same situation as described in (1) above, except that the company expects to sell 26,000 Fops through regular channels next year. Thus, accepting the retail chain's order would require giving up regular sales of 4,000 Fops. Given this new information, what is the financial advantage (disadvantage) of accepting the retail chain's special order? (4 pts)

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