After several years producing and selling at capacity (50,000 units), Melton Company faced a year with projected sales and production of 38,000 units. A potential customer offered to purchase 7,000 units at a price of $18 each. The normal sales price is $30 each. Unit cost information is as follows:
|
Direct materials
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$ 9.00
|
|
Direct labor
|
6.50
|
|
Variable overhead
|
2.00
|
|
Fixed overhead
|
3.75
|
|
Total
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$21.25
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Melton also pays a sales commission of $1.75. The commission would have to be paid on this order.
Required
1. Should Melton accept the special order? By how much will profit increase or decrease if the order is accepted?
2. Suppose that Melton does not have to pay the sales commission on the special order. Should Melton accept the special order? By how much will profit increase or decrease if the order is accepted?