Lansbury Corporation was experiencing a good year in terms of sales volume and profitability of its popular electronic tablets. Each one sold for $325, with per unit product costs shown below.

Per-Unit COGS

DM

$55

DL

40

Variable-MOH

22

Fixed-MOH

30

Total

$147

A sales manager received a call from a potential customer who wanted a last-minute order before year-end. The customer knew the market price but offered to pay $250 per unit instead, for 50 tablets. If the customers employees liked the tablets, it was possible the customer would return and pay full price for a second order next year. Lansburys production facility has the available capacity for this special order without reducing capacity for its regular orders.

Required

In addition to the product costs shown above, Lansbury typically incurs a variable selling cost of $5 per unit. If the company accepts the special order, it will not incur this cost. Based on the available information, should Lansbury take on this special order? How much better or worse off will it be if it accepts this order?

Assume that instead of having available capacity, Lansbury is currently operating at capacity and is selling everything it produces to its usual external customers. If Lansbury takes on this special order, it will not be able to meet market demand. Given this information, should Lansbury accept this special order? How much better or worse off will it be if it accepts the order?

Explain what qualitative factors Lansbury needs to consider before accepting a special order such as this, even if the quantitative analysis supports taking on the order.

Evaluate a keep-or-drop decision considering different types of fixed costs.