1. O'Malley, Inc. has a capacity of producing 300,000 units a year and sells them at $28 a unit. At present O'Malley is selling 250,000 units. A foreign distributor has offered to purchase 40,000 units at $20 a unit. The customer will pay all freight costs and no commissions will be paid on this order, so variable selling costs will be reduced by 40%.

The sales manager has collected the following data on O'Malley's operating costs:

Per Unit

Direct Materials$ 3.00

Direct labor7.50

Variable overhead6.00

Variable selling3.50

Fixed overhead4.00

Fixed administration1.50

Total$25.50

Determine if the order should be accepted or rejected.

a) Yes, the order should be accepted.

b) No, the order should not be accepted.