Question
Friendly Company, which produces a single product, received a special order from Filler-Upper, Inc., a large national company, for the purchase of 900 units of
Friendly Company, which produces a single product, received a special order from Filler-Upper, Inc., a large national company, for the purchase of 900 units of their product. In placing order, Filler-Upper informs Friendly that they will place the order only if Friendly agrees to a selling price of $90 per unit. Friendlys advertised selling price is $115 per unit.
Additionally, Friendlys usual customer order size is 30 units.
Friendly Companys income information for the past month is as follows:
| Total | per unit |
Sales | $138,000 | $115 |
Cost of goods sold | (108,000) | (90) |
Gross profit | $36,000 | $30 |
Selling and administrative expenses | 10,000 | $8 |
Net income | $26,000 | $22 |
For the month presented, the companys detailed manufacturing costs were as follows:
Direct materials | $24,000 |
Direct labor | 38,400 |
Variable manufacturing overhead | 21,600 |
Fixed manufacturing overhead | 24,000 |
Total | $108,000 |
Average cost per unit | $90 |
Assume that selling and administrative expenses are all fixed and Friendly Company did not have beginning or ending inventory balances when Filler-Upper placed their order.
Required
Assuming the company has sufficient productive capacity to supply the special order, should the company accept or reject Filler-Uppers order? Please show your work and explain your answer, briefly.
Ignore part A, and instead assume that, if Friendly accepts Filler-Uppers order, they will be unable to fill 10 regular customer orders, due to capacity limitations. With this new information, should the company accept or reject Filler-Uppers order? Please show your work.
Based on part B., suggest 3 qualitative, i.e., non-financial, issues, the company should consider when deciding on accepting or rejecting this special order.
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