SPECIAL ORDER

sport A lot inc. manufactures toys and sporting equipment including golf kts for pre scholars. A national sporting goods chain recently submitted a special order for 7600 golf kits. Sport A lot was not operating at full capacity and could use the extra business. unfortunately, the order is offering a price of R165 per golf kit, which is below the cost to produce the sets.

the controller was opposed to taking a loss on deal. however, the personal manager argued in favour of accepting the order even though a loss would be incurred: it would avoid the problem of layoffs and would help maintain the community image of the company

The full cos to produce a golf kit is as follows:

Direct materials. R79 Direct labour. R 54 Variable overhead R47. 50 Fixed overhead. R31 Total. R 211.50

No variable selling or administrative expenses would be associated with the order. Fixed overhead costs are unavoidable.

Required:

7.1 Assume that the company will only accept the order if it increased profits. Based on quantitative factors only, should the special order be accepted or not? Show your calculations 7.2 identify three qualitative factors to be considered should a special order be accepted