Joint Corporation manufactures special lawn mowers. Last week Joint Corp received a special-order inquiry from YoYo, Inc., a home improvement and garden retailer.YoYo plans to market a lawn mower similar to Joint's model no. 5X5 and has offered to purchase 3,000 units of modified model no. 5X5 lawn mowers.The following data are available:

• Cost data for Joint's model no. 5X5 lawn mower are as follows:
• Direct materials $45
• Direct labor $30 (2 hours at $15 per hour)
• Manufacturing overhead, $70 (2 hours at $35 per hour)
• The normal selling price of model no. 5X5 is $180; however, YoYo has offered Joint only $115 because of the large quantity it is willing to purchase.
• YoYo requires a design modification that will allow a $4 reduction in direct-material cost.
• Joint's production supervisor notes that the company will incur $8,700 in additional set-up costs and will have to purchase a $3,300 special device to manufacture the modified lawn mowers.The device will be discarded once the special order is completed.
• Total manufacturing overhead costs are applied to production at the rate of $35 per labor hour.Of this, $ 26 per hour is fixed manufacturing overhead.
• One of Joint's staff accountants wants to reject the special order because "financially, it's a loser."He argues that he needs to allocate $5,000 of existing fixed administrative costs to the order "....as part of the cost of doing business."

1. Do you agree with this conclusion (to reject the special order) if Joint Corp currently has excess capacity?Show calculations to support your answer.

6 points

1. Do you agree with the staff accountants argument related to allocating the existing fixed administrative costs to the special order? Briefly explain why you agree/disagree (explain conceptually; no calculation is needed).
2. 5 Points

1. Assume that Joint currently has no excess capacity.Would outsourcing the production of model 5X5 be an option that Joint could consider if management truly wanted to do business with YoYo? (No calculation is necessary). List three qualitative factors that Joint Corporation should consider before making this decision.

6 Points

1. List three qualitative factors that Joint Corporation should consider before it accepts/rejects the special order.