Problem 2 (10) LES Company makes and sells Product QED. The standard cost card for Product QED under the current master budget shows the following per-unit information: Sales price $28.00 Variable (direct) manufacturing costs 12.00 Variable shipping costs 5.00 Fixed manufacturing costs (allocated) 4.00 Fixed marketing costs (allocated) 2.00 AMP Corporation would like to buy 5,000 units of Product QED for customization and sales to end users. LES does not currently sell any products to AMP; about 15% of AMP's sales territory overlaps with locations where AMP does sell its products. AMP sells several other products that LES could produce and has a reputation for working collaboratively with regular suppliers. AMP has offered to pay a price equal to the direct manufacturing costs plus a 35% mark-up on the direct manufacturing costs. AMP will also send its own truck and driver to pick up the Product QED units when they are ready for shipment. LES would have to spend $10,000 (one time) to modify its equipment to produce the AMP order. LES's practical capacity is 50,000 units and the current master budgeted is based on a sales forecast of 46,000 units. You may assume that LES remains within its relevant range even when producing at 50,000 units but cannot produce more than 50,000 units. A. What price per unit has AMP Corporation offered to pay? That is, what is the revenue per unit for the special order? B. What are the total revenues from the special order? C. What are the relevant variable costs per unit for the special order? D. What are the total variable costs of the special order? E. What additional relevant cash flows are involved if LES accepts the special order? F. What is the opportunity cost if LES Company accepts the special order? Think about what LES must give up if it takes on this unexpected volume of 5,000 units. G. Combine your responses to B, D, E, and F into a net cash flow effect of accepting the special order. H. Complete the CBCE below, and indicate your recommendation by putting "" in the small square box. Note that these boxes are slightly different than for the previous problem, but we wind up considering the same information. (1) (2) (3) Net cash flow effect of accepting special Qualitative benefits of accepting special order (from G) order Qualitative costs of accepting special order + ? X= Y= + I. Given the net cash flow effect of this special order, LES Company should accept the special order from AMP Corporation when (state in terms of X and Y)
