Assume that Heath’s present sales will not be affected by the special order, should the order be accepted from the financial point of view? Show calculation?
Heath Production manufactures chairs. Several weeks ago, the company received an inquiry from Rose Limited. Rose wants to market a foldable chair similar to one of Heath’s and has offered to purchase 12 000 units if the offer can be completed in three months. The cost data for Heath’s foldable chair is as follow:
Direct material $16.40
Direct labour (0.125 @ $36 per hour) 4.50
Total manufacturing overhead 20.00
Total $40.90
The normal selling price of Heath’s foldable chair is $51.00. However, Rose has offered Heath only $31.50 because of the large quantity it is willing to purchase. Rose requires a modification of the design that will allow a $4.20 reduction in direct material cost.
The
Total
Rose will allocate $4600 of existing fixed administrative costs to the order as “part of the cost of doing business”.
Assume that Heath’s present sales will not be affected by the special order, should the order be accepted from the financial point of view? Show calculation?
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