Special-Order Decision

The Cool Can Company manufactures drink koozies and has been approached by a new customer with an offer to purchase 15,000 units at a per-unit price of $8.00. The new customer is geographically separated from Cool Can's other customers, and existing sales will not be affected. Cool Can normally produces 86,000 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:

Line Item Description	Cost
Direct materials	$3.10
Direct labor	2.50
Variable overhead	1.00
Fixed overhead	1.80
Total	$8.40

If Cool Can accepts the order, no fixed manufacturing activities will be affected because there is sufficient excess capacity.

1. What are the alternatives for Cool Can?

Accept or reject the special orderBuild a new facility or lease a buildingHire personnel or use subcontractors

2. Conceptual Connection: Should Cool Can accept the special order?

YesNo

By how much will operating income increase or decrease if the order is accepted?

IncreaseDecrease

3. Conceptual Connection: Briefly explain the significance of the statement in the exercise that "existing sales will not be affected" (by the special sale).

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 sales will not decrease Cool Can's regular sales.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 this special sale.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 this special sale.It indicates that though there will be product-line cannibalization; but there is sufficient excess capacity such that the acceptance of the special sales will not decrease Cool Can's regular sales.