1. Special Order

Midnight Rambler Co. produces a variety of electric scooters. Management follows a pricing policy of manufacturing costs plus 60 percent. In response to request from Jack Flash Cycles, the following price has been developed for an order of 300 scooters (the smallest scooter Midnight Rambler produces:

Manufacturing Costs:

Direct materials: 24,000

Direct Labor: 30,000

Factory Overhead: 36,000

Total: 90,000

markup (60%): 54,000

Selling Price: 144,000

Jack Flash rejected this price and offered to purchase the 300 scooters at a price of $120,000. The following additional information is available:

• Midnight Rambler has sufficient excess capacity to produce the scooters
• Factory overhead is applied ono the basis of direct labor dollars
• Budgeted factory overhead is $800,000 for the current year. Of this amount, $200,000 is fixed of the $36,000 of factory overhead assigned to Jack Flash Cycles, only $27,000 is driven by special order; $9,000 is a fixed cost.
• Selling and Administrative expenses are budgeted as follows:
  • Fixed$180,000 per year
  • Variable.$40 per unit manufactured and sold.

Required:

1. The president of Midnight Rambler wants to know if he should allow Jack Flash to have the scooters for $120,000. Determine the effect on profits from accepting Jack Flashs offer.
2. Briefly explain why certain costs should be omitted from the analysis in requirement (a.)
3. Assume Midnight Rambler is operating at capacity and could sell the 300 scooters at its regular markup:
   1. Determine the Opportunity Cost of accepting Jack Flashs offer.
   2. Determine the effect on profits of accepting Jack Flashs offer
4. What other factors should Midnight Rambler consider before deciding to accept the special order?