Question
Franco, Inc., produces dental office examination chairs. Franco has the capacity to produce 5,000 chairs per year and currently is producing 4,000. Each chair retails
Franco, Inc., produces dental office examination chairs. Franco has the capacity to produce 5,000 chairs per year and currently is producing 4,000. Each chair retails for $2,800, and the costs to produce a single chair consist of direct materials of $750, direct labor of $600, and variable overhead of $300. Fixed overhead costs of $1,350,000 are met by selling the first 3,000 chairs. Franco has received a special order from Ghanem, Inc., to buy 800 chairs for $1,800. Should Franco accept the special order? How would Franco's decision change if the factory was already producing at capacity at the time of the special offer?
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