Question
Vernon Company manufactures a personal computer designed for use in schools and markets it under its own label. Vernon has the capacity to produce 35,000
Vernon Company manufactures a personal computer designed for use in schools and markets it under its own label. Vernon has the capacity to produce 35,000 units a year but is currently producing and selling only 17,000 units a year. The computers normal selling price is $1,680 per unit with no volume discounts. The unit-level costs of the computers production are $470 for direct materials, $140 for direct labor, and $100 for indirect unit-level manufacturing costs. The total product- and facility-level costs incurred by Vernon during the year are expected to be $2,100,000 and $802,000, respectively. Assume that Vernon receives a special order to produce and sell 3,100 computers at $1,290 each. Required Calculate the contribution to profit from the special order. Should Vernon accept or reject the special order?
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