Flexright industries manufactures glass globes for light fixtures. Their production costs for each case are as follows:
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Direct materials
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$40.00
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Direct labor
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$20.00
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Variable overhead
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$5.00
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Fixed overhead
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$20.00
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Total
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$75.00
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Regular sales price
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$150.00
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Fixed overhead is computed based on production and sales of 800 cases. $10.00 of the $20.00 fixed overhead cost per case relates to the batch costs allocated to each case. Current production requires 80 batches with 10 cases per batch (for the total of 800 cases). Flexright has the capacity to run 90 batches.
Flexright has been approached by LiteMyFire to provide a special order for 500 cases. The order would require only 25 batches of 20 cases each instead of the usual 10 cases per batch. The cost per batch is not expected to change. The special order is an "all-or-nothing" order.
If the special order is accepted, 150 cases of regular sales will be lost because the special order requires 25 batches and Flexright only has the capacity for 90 batches.
What is the opportunity cost of accepting the special order?
What is the minimum acceptable price for this special order without losing money on the special order (total price for the order)?
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Minimum acceptable price:
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Show computations here.