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.