Part E: Special-Order

Okon, Inc. is working at full production capacity producing 20,000 units of a unique product. Manufacturing costs per unit for the product are as follows:

Data
	Direct materials		$9.00
	Direct labor		$8.00
	Manufacturing overhead		$10.00
	Total manufacturing cost		$27.00
Current capacity (units) =	20,000
Current production volume (units) =	20,000
Current production volume (Part 2) =	16,000
Variable overhead cost per unit =	$4.00
Total fixed overhead cost =	$120,000	per year
Variable non-manufacturing costs per unit =	$8.00
Normal selling price per unit =	$45.00
Special-order request (units) =	5,000
Revised cost per unit, special order =	$4.00
Special order selling price per unit =	$35.00

Required:To earn full or partial marks, you need to show all calculations in good form.

1. Should Okon, Inc.produce the special order for SHC? That is, what is the impact on short-term operating profit of

accepting the order?

2. Suppose that Okon, Inc.. had been working at less than full capacity to produce 16,000 units of the product when

SHC made the offer. What is the minimum price that Alton should accept for the modified product under those

conditions? Explain.