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Structuring a Special-Order Problem offer to purchase 5,000 units of its hands-free, Wi-Fi-enabled automotive Rabbit Foot Motors has been approached by a new customer with
Structuring a Special-Order Problem offer to purchase 5,000 units of its hands-free, Wi-Fi-enabled automotive Rabbit Foot Motors has been approached by a new customer with an model-the SMAK-at a price of $18,000 per automobile. Rabbit Foot's other sales would net be affected by this new customer offer. Rabbit Foot normally produces 100,000 units of its SMAK model per year but only plans to produce and sell 90,000 in the coming year. The normal cost information for the normal level of activity is as follows: sales price is $35,000 per SM MAK. Unit Direct materials $10,000 2,000 Direct labor 4,000 Variable overhead 8,000 Fixed overhead $24,000 Total Fixed overhead will not be affected by whether or not the special order is accepted. Required: 1. What are the relevant costs and benefits of the two alternatives (accept or reject the special order)? Special order price, direct materials, direct labor, and variable overhead, 2. Bv how much will operating income increase or decrease if the order is accepted
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