Part 1

Fay

Industries Ltd. has been approached by a customer who wishes to purchase

44,000

units of its product at

$53

per unit. The customer requires delivery within one month. The company has capacity to produce

356,000

units per month and has

12,000

units currently in stock. Sales to

Fay's

regular customers are forecast at

340,000

units for the upcoming month. The sales manager has indicated that if the company accepts the special order, it would be able to recover

45%

of the sales lost to regular customers. Units sold through normal distribution channels have a selling price of

$63

per unit, and the gross margin earned on each unit is

$26.

Selling and administration costs total

$14

per unit.A further analysis determined that the variable manufacturing costs of the regular units are

$35

per unit with variable selling costs of

$8

per unit. Because of the nature of the special order, the selling costs will be reduced to

$6

per unit, of which is all variable costs.

Requirement 1. Should

Fay

accept the offer from the customer?

First, determine the opportunity cost from lost sales and the amount gained from the special order.

The opportunity cost from the lost sales is

enter your response here.

The amount gained from the special order is

enter your response here.