KellyTechnologies has a capacity of 400,000 computer monitors per year. The company is currently producing and selling 200,000 monitors per year at a selling price of $300 per monitor. The cost of producing and selling one monitor at the 200,000-unit level of activity follows:

Variable Manufacturing Costs $100

Fixed Manufacturing Costs 35

Variable Selling and Administrative Costs 50

Fixed Selling and Administrative Costs 15

Total Costs $200

The company has received a special order for 20,000 monitors at a price of $175 per monitor. As it need not pay a sales commission on the special order, the variable selling and administrative costs would be only $40 per monitor. The special order would have no effect on total fixed costs. The company has rejected the offer based on the following computations:

Selling Price per Monitor $175

Variable Manufacturing Costs 100

Fixed Manufacturing Costs 50

Variable Selling and Administrative Costs 40

Fixed Selling and Administrative Costs 15

Net Loss per Monitor $(30)

Management is reviewing its decision and wants your advice.

Required:

1. Should Kelly accept the special order? Show your computations.
2. Discuss the pros and cons of accepting a special order.