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Sophia's Sofas produces high-end sofas sold to furniture stores for $600 each. The plant capacity is 50,000 units annually, but normal volume is 35,000 units.

Sophia's Sofas produces high-end sofas sold to furniture stores for $600 each. The plant capacity is 50,000 units annually, but normal volume is 35,000 units. Unit and total costs at normal volume are:

Type of Cost

Unit Costs

Total Costs

Direct materials

$200.00

$7,000,000

Direct labor

$150.00

$5,250,000

Manufacturing support

$100.00

$3,500,000

Selling and administrative

$50.00

$1,750,000

Total costs

$500.00

$17,500,000

Fixed manufacturing support costs are $4,000,000, and fixed selling and administrative costs are $1,500,000.

A prospective customer offers to purchase 10,000 units at $500 each, with simplified packaging reducing variable selling and administrative costs by 30%.

Required: Determine whether Sophia's Sofas should accept this special order. Conduct a contribution margin analysis to justify your recommendation.

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