Woody Marionettes presently manufacturers a string that is currently used in the production of Marionettes. Woody is capable of producing 24,000 strings per year. The $13.75 unit cost is based on 16,000 strings produced each year that sell for $15.00 each.

The unit costs to make this switch are:

Direct materials $2.00

Direct Labor 2.50

Variable manufacturing overhead 0.50

Fixed manufacturing overhead 4.25

Variable selling and administration costs 1.50

Fixed selling and administration costs 2.00

$13.75

Fixed costs are allocated based on the basis of direct labor hours and is not avoidable.

An outside supplier has approached Woody to provide the 4,000 strings at a price of $12.00 each and this order will not affect regular sales.

To complete this order Woody will have to dye the strings at a cost of $1.00 per string and purchase a special spinner for this specific order at a cost of 24,000.

Required:

ALL CALCULATIONS MUST BE SHOWN

1. Should the company accept the outside suppliers offer?
2. Would it be different if Woody could make cowboy hats in the space now occupied by the string manufacturing and make a profit of $6,000?
3. Give two qualitative factors would influence your decision and explain why they would influence you.