Part 1:

Falco Inc. manufactures a moderately priced set of lawn furniture (a table and four chairs) that it sells for $225. The company currently manufactures and sells 6,000 sets per year. The manufacturing costs include $85 for direct materials and $45 for direct labor per set. The overhead charge per set is $35 which consists entirely of fixed costs.

Falco is considering a special purchase offer from a large retail firm, which has offered to to buy 600 sets per year for three years at a price of $150 per set. High Value has the available plant capacity to produce the order and expects no other orders of profitable alternative uses of the plant capacity.

Required:

1. What is the total relevant cost per unit to produce the units requested by the retail firm?
2. What is the estimated net effect on annual operating income if Falco accepts the special sales order?
3. Discuss relevant non-financial considerations relevant to the decision.