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Poppy Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 30,000 Rets per year; however,
Poppy Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 30,000 Rets per year; however, due to a recession, Poppy Company is currently selling only 25,000 Rets. Costs associated 25,000 Rets are given below: 6. Unit Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead 15$375,000 200,000 3.075,000 270,000 $15.0. , Total 8..//. 10.8 X The Rets normally sell for $50 each. Total fixed manufacturing overhead is constant at $270,000. A large retail chain has offered to purchase 5,000 Rets at $42 per unit. Moreover, the customer requests a small change to be made to Rets. Since this product specification is somewhat different from Poppy's normal product, to ensure the product quality, Poppy needs to lease a special inspection machine during the production process. The lease cost of the machine is $37.000, and the machine will not be used for any other purposes. Required: If Poppy accepts the special order, by how much will the company's Net Income increase or decrease? Should Poppy accept or reject the special order? (Accept. NI will increase by $43,000)
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