Q-Rank company produces standing electric fans and has been approached by a new customer with an offer to purchase 14,000 units at a per-unit price of $6.80. The new customer is geographically separated from other customers, and existing sales will not be affected. If Q-Rank accepts the order, no fixed manufacturing activities will be affected because there is sufficient excess capacity.

Q-Rank normally produces 80,000 units but plans to produce and sell only 60,000 in the coming year. The normal sales price is $11 per unit. Unit cost information is as follows:

Direct materials $2.40

Direct labour 2.20

Variable overhead 1.80

Fixed overhead 1.80

Total $8.20

Required:

1. What are the alternatives for Q-Rank? (2 Marks)

2. Should Q-Rank accept the special order? By how much will profit increase or decrease if the order is accepted? ( 6 Marks)

3. Suppose the new customer wants to have its company logo affixed to each fan using a label. Q-Rank would have to purchase a special logo labeling machine that will cost $14,000. The machine will be able to label the 14,000 units and then it will be scrapped (with no further value). No other fixed overhead activities will be incurred. Should Smooth Move accept the special order? By how much will profit increase or decrease if the order is accepted? (6 Marks)