ICP $4$

Albrecht Lid. manufactures tackle boxes, and the company estimates that during the first

quarter of this year, it will be operating at $80\%$ of normal capacity. The selling price and cost

information for the tackle box is as follows:

Selling price

$$22\mathrm{.}50$

Direct materials

Direct labour hours $$$$15\mathrm{.}00$

Overhead $(0\mathrm{.}25$ machine hours $$$$10$

$$6\mathrm{.}25$

$7\mathrm{.}50$

$2\mathrm{.}50$

$$16\mathrm{.}25$

Albrecht is considering two special order requests to fill the remaining $20\%$ of capacity. The

special order requests received are as follows:

Alan Co$.$ has asked for a tackle box that is similar to Albrecht's boxes but which Alan would

like to market as its own. Alan is willing to pay $$15,00$ each for $20,000$ boxes. The special

order for Alan would have the same costs except for direct materials, which would be only

$$5\mathrm{.}60$ per box.

Shala Corp. has asked for $7,500$ tackle boxes at $$18\mathrm{.}00$ per box. This box will be different

than the regular case Albrecht produces and would have the following cost data:

Direct materials

$$8\mathrm{.}15$

$7\mathrm{.}50$

$5\mathrm{.}00$

$$20\mathrm{.}65$

Direct labour $(0\mathrm{.}5$ hours $$$$15\mathrm{.}00),7\mathrm{.}50$

Overhead $(0\mathrm{.}50$ machine hours $$$$10),{5\mathrm{.}00}_{?}$

$,$$$20\mathrm{.}65$

The Shala order will also result in $$3,750$ of setup costs and $$6,250$ for additional

equipment, which will be used only for this order and then discarded.

Albrecht's manufacturing machine hours are limited to $7,500$ per month. The budgeted fixed

overhead for this year is $$540,000.$ Overhead is applied to production based on machine hours

at $$10$ per hour.

Albrecht has the entire first quarter to work on the special orders, if accepted. Each special

order is isolated and not expected to result in future sales from either Shala or Alan.

Required:

Should either or both special orders be accepted? What are the qualitative aspects of this

decision?