Special-Order Decision Smooth Move Company manufactures professional paperweights and has been approached by a new customer with an offer to purchase 15,000 units at a per-unit price of $10.00. The new customer is geographically separated from Smooth Move's other customers, and existing sales will not be affected. Smooth Move normally produces 89,000 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: $3.10 Direct materials Direct labor 2.25 Variable overhead 1.15 Fixed overhead 1.80 Total $8.30 If Smooth Move accepts the order, no fixed manufacturing activities will be affected because there is sufficient excess capacity. Required: 1. What are the alternatives for Smooth Move? Accept or reject the special order Build a new facility or lease a building Hire personnel or use subcontractors Smooth Move accept the special order? By how much will profit increase or decrease if the order is accepted? price of $10.00. The new customer is geographically separated from Smooth Move's other customers, and existing sales will not be affected. Smooth Move normally produces 89,000 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: Direct materials $3.10 Direct labor 2.25 Variable overhead 1.15 Fixed overhead Total 1.80 $8.30 If Smooth Move accepts the order, no fixed manufacturing activities will be affected because there is sufficient excess capacity. Required: 1. What are the alternatives for Smooth Move? 2. CONCEPTUAL CONNECTION: Should Smooth Move accept the special order? Yes ofit increase or decrease if the order is accepted? No 3. CONCEPTUAL CONNECTION: Briefly explain the significance of the statement in the exercise that "existing sales will not be affected" (by the special sale). Direct labor 2.25 Variable overhead 1.15 1.80 Fixed overhead Total $8.30 If Smooth Move accepts the order, no fixed manufacturing activities will be affected because there is sufficient excess capacity. Required: 1. What are the alternatives for Smooth Move? 2. CONCEPTUAL CONNECTION: Should Smooth Move accept the special order? By how much will profit increase or decrease if the order is accepted? Increase Decrease 3s NNECTION: Briefly explain the significance of the statement in the exercise that "existing sales will not be affected" (by the special sale). Direct labor 2.25 Variable overhead 1.15 Fixed overhead Total 1.80 $8.30 If Smooth Move accepts the order, no fixed manufacturing activities will be affected because there is sufficient excess capacity. Required: 1. What are the alternatives for Smooth Move? 2. CONCEPTUAL CONNECTION: Should Smooth Move accept the special order? By how much will profit increase or decrease if the order is accepted? It indicates that there will be no product-line cannibalization; in other words, there is sufficient excess capacity such that the acceptance of the special It indicates that there will be reduction in overall sales value; in other words, sales value lost of the existing product will be compensated by the sale of It indicates that there will be reduction in overall sales value; in other words, sales value lost of the existing product will be compensated by the sale of It indicates that though there will be product-line cannibalization, but there is sufficient excess capacity such that the acceptance of the special sales the special sale). compensated by the sale o Previous Next>