Problem 1

Gleeson manufactures a single product with the following full unit costs for 6,000 units:

Direct materials	$160
Direct labor	80
Manufacturing overhead (40% variable)	240
Selling expenses (60% variable)	80
Administrative expenses (10% variable)	40
Total per unit	$600

A company recently approached Gleeson with a special order to purchase 1,000 units for $575. Gleeson currently sells the models to dealers for $1,100. Capacity is sufficient to produce the extra 1,000 units. No selling expenses would be incurred on the special order.

Required:

a. Ignoring the special order, determine Gleesons profit on production and sales of 6,000 units. Ignore taxes in these analyses.

b. Should Gleeson accept the special order if its goal is to maximize short-run profits? Determine the impact on profit of accepting the order.

c. Determine the minimum price Gleeson would want, to increase before tax profits by $160,000 on the special order.

d. When making a special order decision, what non-quantitative aspects of the decision should Gleeson consider?