Question
Poppy has received a special order for 1,000 units of its product at a special price of $125. The product currently sells 18,000 units for
Poppy has received a special order for 1,000 units of its product at a special price of $125. The product currently sells 18,000 units for $150 and has the following manufacturing costs:
Per unit | |||
Direct materials | $ | 45 | |
Direct labor | 30 | ||
Variable manufacturing overhead | 35 | ||
Fixed manufacturing overhead | 25 | ||
Unit cost | $ | 135 | |
Assume that Poppy has sufficient capacity to fill the order without harming normal production and sales and all fixed overhead is unavoidable. a. If Poppy accepts the order, what effect will the order have on the companys short-term profit? Now assume that Poppy has sufficient capacity to fill 500 units of the order without harming normal sales. b. If Poppy accepts the order and fills it completely, what effect will the order have on the companys short-term profit?
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