Question Content Area

Special-Order Decision

The Cool Can Company manufactures drink koozies and has been approached by a new customer with an offer to purchase 15,000 units at a per-unit price of $7.00. The new customer is geographically separated from Cool Can's other customers, and existing sales will not be affected. Cool Can normally produces 92,000 units but plans to produce and sell only 65,000 in the coming year. The normal sales price is $16 per unit. Unit cost information is as follows:

Line Item Description	Cost
Direct materials	$3.10
Direct labor	2.75
Variable overhead	1.15
Fixed overhead	1.80
Total	$8.80

In addition, assume that the new customer also wants to have its company logo affixed to each koozie using a label. Cool Can would have to purchase a special logo labeling machine that will cost $12,000. The machine will be able to label the 15,000 units and then it will be scrapped (with no further value). No other fixed overhead activities will be incurred. In addition, each special logo requires additional direct materials of $0.20.

Conceptual Connection: Should Cool Can accept the special order?

YesNo

By how much will operating income increase or decrease if the order is accepted? If your answer is decrease, enter negative value.

IncreaseDecrease

fill in the blank 1 of 1$