Kay Christian manages a company that produces wedding gowns. She produces both a custom

product that is made to order and a standard product that is sold in bridal salons. Her accountant

prepared the following forecasted income statement for March, which is a busy month.

Custom Dresses Standard Dresses Total

Number of Dresses 10 20 30

Sales Revenue $50,000 $30,000 $80,000

Materials $10,000 $8,000 $18,000

Labor $20,000 $9,000 $29,000

Machine Depreciation $600 $300 $900

Rent $4,200 $2,800 $7,000

Heat and Light $1,000 $600 $1,600

Other production costs $2,800

Marketing and Administration $7,700

Total Costs $67,000

Operating Profit $13,000

Kay already has orders for the 10 custom dresses reflected in the March forecasted income

statement. The depreciation charges are for machines used in the respective product lines.

Machines depreciate at the rate of $1 per hour based on hours used, so these are variable costs. In

March, cutting and sewing machines are expected to operate for 900 hours, of which 600 hours

will be used to make custom dresses. The rent is for the building space, which has been leased

for several years at $7,000 per month. The rent, heat and light are allocated to the product line

based on the amount of floor space occupied.

A valued customer, who is a wedding consultant, has asked Kay for a special favor. This

customer has a client who wants to get married in early April. Kays company is working at

capacity and would have to give up some other business to make this dress. She cant renege on

custom orders already agreed to, but she can reduce the number of standard dresses produced in

March to 10. Kay would lose permanently the opportunity to make up the lost production of

standard dresses because she has no unused capacity for the foreseeable future. The customer is

willing to pay $24,000 for the special order. Materials and labor for the order will cost $6,000

and $10,000, respectively. The special order would require 140 hours of machine time. Kays

company would save 150 hours of machine time from the standard dress business given up.

Rent, heat and light, and other production costs would not be affected by the special order.

Required:

1) Should Kay take the order? Explain (show how you arrived at) your answer?

2) What is the minimum price Kay should accept to take the special order.

3) What are other factors, if any, besides price that she should consider?