Problem $14-45$ Special Order; Financial and Production Considerations $($LO $14-4,14-5)$

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Jupiter Corporation manufactures skateboards. Several weeks ago, the firm received a special$-$order inquiry from Venus, Inc. Venus desires to market a skateboard similar to one of Jupiter$$s and has offered to purchase $11,000$ units if the order can be completed in three months. The cost data for Jupiter$$s model no$.43$ skateboard follow.

Direct material $ $8\mathrm{.}20$

Direct labor: $0\mathrm{.}25$ hours at $$9\mathrm{.}002\mathrm{.}25$

Total manufacturing overhead:

$0\mathrm{.}5$ hours at $$2010\mathrm{.}00$

Total $ $20\mathrm{.}45$

Additional data:

The normal selling price of model no$.43$ is $$26\mathrm{.}50$; however, Venus has offered Jupiter only $$15\mathrm{.}75$ because of the large quantity it is willing to purchase.

Venus requires a modification of the design that will allow a $$2\mathrm{.}10$ reduction in direct$-$material cost.

Jupiter$$s production supervisor notes that the company will incur $$3,700$ in additional setup costs and will have to purchase a $$2,400$ special device to manufacture these units. The device will be discarded once the special order is completed.

Total manufacturing overhead costs are applied to production at the rate of $$20$ per machine hour. This figure is based, in part, on budgeted yearly fixed overhead of $$750,000$ and planned production activity of $60,000$ machine hours $(5,000$ per month$).$

Jupiter will allocate $$1,800$ of existing fixed administrative costs to the order as $...$ part of the cost of doing business.$$

Problem $14-45$ Part $1$

Required:

$1-$a$.$ Calculate the net profit increase or $($decrease$)$ from accepting the special order.

$1-$b$.$ Assume that present sales will not be affected. Should the order be accepted from a financial point of view $($i$.$e$.,$ is it profitable$)?$