Question
Wood-Lover Furniture Manufacturing is approached by Mr. Albert Cheung, a new customer, to fulfill a large one-time-only special order for a cabinet similar to one
Wood-Lover Furniture Manufacturing is approached by Mr. Albert Cheung, a new customer, to fulfill a large one-time-only special order for a cabinet similar to one offered to regular customers. The following per unit data apply for sales to regular customers:
Direct material cost $546
Direct labor cost 360
Variable manufacturing overhead cost 54
Fixed manufacturing overhead cost 120
Total product cost 1,080
Markup (60%) 648
Targeted selling price $1,728
Wood-Lover Furniture Manufacturing has excess capacity. Mr. Cheung wants the cabinets in cherry rather than oak, so direct material costs will increase to $600 per unit. The average marketing cost of Wood-Lover Furniture Manufacturing is $180 per unit.
Required
- For Wood-Lover Furniture Manufacturing, what is the per unit relevant cost of the one-time-only special order? (3 marks)
- If Mr. Cheung offered to purchase the specialized cabinet at $1,500 per unit, should Wood-Lover Furniture Manufacturing accept this special order? Why? (3 marks)
- Discuss two factors Wood-Lover Furniture Manufacturing should consider before accepting this special order. (6 marks)
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