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Managers must often evaluate whether a special order should be accepted, and if the order is accepted, the price that should be charged. A special
Managers must often evaluate whether a special order should be accepted, and if the order is accepted, the price that should be charged. A special order is a one-time order that is not considered part of the companys normal ongoing business. To illustrate, Mountain Goat Cycles has just received a request from the Seattle Police Department to produce 100 specially modified mountain bikes at a price of $558 each. The bikes would be used to patrol some of the more densely populated residential sections of the city. Mountain Goat Cycles can easily modify its City Cruiser model to fit the specifications of the Seattle Police. The normal selling price of the City Cruiser bike is $698, and its unit product cost is $564, as shown below: Direct materials $372 Direct labor 90 Manufacturing overhead 102 Unit product cost $564 The variable portion of the above manufacturing overhead is $12 per unit. The order would have no effect on the companys total fixed manufacturing overhead costs. The modifications requested by the Seattle Police Department consist of welded brackets to hold radios, nightsticks, and other gear. These modifications would require $34 in incremental variable costs. In addition, the company would have to pay a graphics design studio $2,400 to design and cut stencils that would be used for spray painting the Seattle Police Departments logo and other identifying marks on the bikes. The companys managers believe that this order will have no effect on the companys other sales, and it can be produced without disrupting any of the companys regular scheduled production
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