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Problem 3 Friendly Company, which produces a single product, received a special order from Filler-Upper, Inc., a large national company, for the purchase of 900

Problem 3

Friendly Company, which produces a single product, received a special order from Filler-Upper, Inc., a large national company, for the purchase of 900 units of their product. In placing order, Filler-Upper informs Friendly that they will place the order only if Friendly agrees to a selling price of $90 per unit. Friendlys advertised selling price is $115 per unit.

Additionally, Friendlys usual customer order size is 30 units.

Friendly Companys income information for the past month is as follows:

Total

per unit

Sales

$138,000

$115

Cost of goods sold

(108,000)

(90)

Gross profit

$36,000

$30

Selling and administrative expenses

10,000

$8

Net income

$26,000

$22

For the month presented, the companys detailed manufacturing costs were as follows:

Direct materials

$24,000

Direct labor

38,400

Variable manufacturing overhead

21,600

Fixed manufacturing overhead

24,000

Total

$108,000

Average cost per unit

$90

Assume that selling and administrative expenses are all fixed and Friendly Company did not have beginning or ending inventory balances when Filler-Upper placed their order.

Required

A. Assuming the company has sufficient productive capacity to supply the special order, should the company accept or reject Filler-Uppers order? Please show your work and explain your answer, briefly.

B. Ignore part A, and instead assume that, if Friendly accepts Filler-Uppers order, they will be unable to fill 10 regular customer orders, due to capacity limitations. With this new information, should the company accept or reject Filler-Uppers order? Please show your work.

C. Based on part B., suggest 3 qualitative, i.e., non-financial, issues, the company should consider when deciding on accepting or rejecting this special order.

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