Shilling Manufacturing produces and sells oil filters for $3.25 each. A retailer has offered to purchase 20,000 oil filters for $1.55 per filter. Of the total manufacturing cost per filter of $2.10, $1.30 is the variable manufacturing cost per filter. For this special order, Shilling would have to buy a special stamping machine that costs $8,000 to mark the customer's logo on the special order oil filters. The machine would be scrapped when the special order is complete. This special order would use manufacturing capacity that would other- wise be idle. No variable nonmanufacturing costs would be incurred by the special order. Regular sales would not be affected by the special order. Would you recommend that Shilling accept the special order under these conditions?
Shilling Manufacturing produces and sells oil filters for $3.25 each. A retailer has offered to purchase 20,000 oil filters for $1.55 per filter. Of the total manufacturing cost per filter of $2.10, $1.30 is the variable manufacturing cost per filter. For this special order, Shilling would have to buy a special stamping machine that costs $8,000 to mark the customer's logo on the special order oil filters. The machine would be scrapped when the special order is complete. This special order would use manufacturing capacity that would other- wise be idle. No variable nonmanufacturing costs would be incurred by the special order. Regular sales would not be affected by the special order. Would you recommend that Shilling accept the special order under these conditions?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:### Special Order Decision (Learning Objective 3)
**Scenario:**
Shilling Manufacturing produces and sells oil filters for $3.25 each. A retailer has proposed to purchase 20,000 oil filters at a price of $1.55 per filter.
**Cost Analysis:**
- **Total Manufacturing Cost per Filter:** $2.10
- **Variable Manufacturing Cost per Filter:** $1.30
**Special Order Considerations:**
- A special stamping machine, necessary for marking the customer's logo on the oil filters, will cost $8,000. This machine will be discarded after completing the special order.
- This order utilizes manufacturing capacity that would otherwise remain idle.
- No variable nonmanufacturing costs are attributable to this special order.
- Regular sales will remain unaffected.
**Decision Query:**
- Should Shilling accept the special order based on these conditions?
**Analytical Approach:**
Consider the variable costs, fixed costs of the machine, and the potential benefits such as utilizing idle capacity without impacting regular operations.
Would you recommend Shilling accept the special order under these conditions?
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