Question
Lorraine manufactures a single product with the following full unit costs for 3,000 units: Direct materials $80 Direct labor 40 Manufacturing overhead (40% variable) 120
Lorraine manufactures a single product with the following full unit costs for 3,000 units:
Direct materials | $80 |
Direct labor | 40 |
Manufacturing overhead (40% variable) | 120 |
Selling expenses (60% variable) | 40 |
Administrative expenses (10% variable) | 20 |
Total per unit | $300 |
A company recently approached Lorraine with a special order to purchase 500 units for $300. Lorraine currently sells the models to dealers for $550. Capacity is sufficient to produce an extra 450 units. No selling expenses would be incurred on the special order.
Required:
Should Lorraine accept the special order? Determine the impact on profit of accepting the order.
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