Aerotoy company makes toy airplanes one plane is an, Ask an Expert

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Aerotoy Company makes toy airplanes. One plane is an excellent replica of a 737; it sells for $5. Vacation Airlines wants to purchase 12,000 planes at $1.75 each to give to children flying unaccompanied. Costs per plane are as follows:

Direct materials $1.00
Direct labor 0.50
Variable overhead 0.10
Fixed overhead 0.90

No variable marketing costs would be incurred. The company is operating significantly below the maximum productive capacity. No fixed costs are avoidable. However, Vacation Airlines wants its own logo and colors on the planes. The cost of the decals is $0.01 per plane and a special machine costing $1,500 would be required to affix the decals. After the order is complete, the machine would be scrapped. Should the special order be accepted?

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9975486

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