Question
Lucy Company has the capacity to produce 15,000 units per month. Current regular production and sales are 10,000 units per month at a selling price
Lucy Company has the capacity to produce 15,000 units per month. Current regular production and sales are 10,000 units per month at a selling price of Br. 15 each. Based on the current production level, the following costs are to be incurred per unit: Direct materials Br. 5.00 Direct labor 3.00 Variable factory overhead (FOH) 0.75 Fixed FOH 1.50 Variable selling expense 0.25 Fixed administrative expense 1.00 Lucy Company has received special order from a customer that wants to purchase 4,000 at units Br. 10 each. There would be no selling expense in connection with this special order. Instructions: a. Should Lucy Company accepts or rejects the special order? Why or Why not? Assume that the special order should not disturb regular business. b. Suppose that the special order was for 8,000 units instead of 4,000 units. Thus, regular business would be reduced by 3,000 units to accept the special order because production capacity cannot be expanded in the short run. What would be the overall profit of the firm if it accepts this order? c. Refer the data given in requirement (b) above. At what selling price per unit from the customer would the Lucy Company be economically indifferent between accepting and rejecting the offer?
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a Lucy Company should accept the special order of 4000 units Regular production Units 10000 Revenue ...Get Instant Access to Expert-Tailored Solutions
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