Rippey Corporation manufactures a single product with the following unit costs for 5,000 units:

Direct materials$ 60

Direct labor30

Factory overhead (40% variable)90

Selling expenses (60% variable) 30

Administrative expenses (20% variable) 15

Total per unit$225

Recently, a company approached Rippey Corporation about buying 1,000 units for $225. Currently, the models are sold to dealers for $412.50. Rippey's capacity is sufficient to produce the extra 1,000 units. No additional selling expenses would be incurred on the special order.

You got to know that the CEO of the company is about to reject the special order, citing "This is not a charitable organization.Why should we sell at cost?"

Required:

a.Explain to the CEO explaining why his argument is correct or incorrect. Your explanation should only be based on concepts (no numerical analysis is necessary)

b.If the special order requires a special tool that is going to cost the company $ 25,000, and if this tool has no use and no salvage value after the special order is completed, then what is the minimum acceptable price?

c.Now, assume that the special order requires a part that needs machine work by a skilled machinist. The company has only one machinist who can perform this work. Plant manager is concerned about overworking this machinist, and therefore he has explored the option of outsourcing the parts needed for the special order. Unit cost information related to making the part in-house is as follows:

Direct materials

$8

Direct labor

2

Variable manufacturing overhead

1

Fixed overhead

4

Fixed overhead is unavoidable as the Rippey will be making this part for regular customers. Filbert Company has offered to sell 1,000 parts at $10 per unit. If Rippey outsources this part, they will have to incur a $250 freight cost to get the part delivered.

Will outsourcing be financially advantageous or disadvantageous to the company? By how much?