Technology Inc. Ltd sells desktop computer printers for $65 per unit. Unit product costs are: Direct materials $12 Direct labor 20 Manufacturing overhead 6 Total $38 A special order to purchase 10,000 desktop computer printers has recently been received from another company, and Technology Inc. has the idle capacity to fill the order. The company will incur an additional $1.50 per printer for additional labor costs due to a slight modification the buyer wants to be made to the original product. One-third of the manufacturing overhead costs are fixed and will be incurred no matter how many units are produced. $2,100 of existing fixed administrative costs will be allocated to the order as “part of the cost of doing business”. Required: a) Which of the data above should be ignored in making the special-order decision? For what reason? b) Should Technology Inc. Ltd accept the order if the buyer offers $38 per unit for 10,000 desktop computer printers? c) What factors must any company consider before accepting a special-order contract?
Technology Inc. Ltd sells desktop computer printers for $65 per unit. Unit product costs are:
Direct materials $12
Direct labor 20
Manufacturing
Total $38
A special order to purchase 10,000 desktop computer printers has recently been received from another company, and Technology Inc. has the idle capacity to fill the order. The company will incur an additional $1.50 per printer for additional labor costs due to a slight modification the buyer wants to be made to the original product. One-third of the
Required:
- a) Which of the data above should be ignored in making the special-order decision? For what reason?
- b) Should Technology Inc. Ltd accept the order if the buyer offers $38 per unit for 10,000 desktop computer printers?
- c) What factors must any company consider before accepting a special-order contract?
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