Lispell Co. manufactures in-line skates that sell for $128 a pair in the domestic mRKET. Currently, Lispell full production capacity is at 2000 pairs.

Direct Materials $48

Direct labour $12

Variable overhead $3

Fixed overhead $5 ($10 000/2000 pairs)

Variable selling and administrative $8 (sales commissions)

Fixed administrative $4 ($8000/2000 pairs)

Required:

A) At full capacity, if an outside retailer wanted to order 400 pairs (special order), what will be the relevant cost per unit if the Lispell accept the special order?

B) If the current production capacity is at 60% capacity:

i) What will be the relevant cost per unit for the special order? However, there would be no sales commission incurred on the order and fixed administrative expenses will be apportioned using number of units produced.

ii) Calculate the income effect if Lispell accept the special order at $120/pair.

C) Are there any qualitative considerations that need to be addressed? Explain.