Q1) Maui Juda Sunglasses sell for about %154 per pair. Assume company acquires average costs per pair which is given below:
|
Direct Materials
|
$38
|
|
Direct labor
|
10
|
|
Variable manufacturing overhead
|
8
|
|
Variable marketing expenses
|
2
|
|
Fixed manufacturing overhead
|
16*
|
|
Total costs
|
74
|
$2,200,000 total fixed manufacturing overhead/137,500 pairs of sunglasses
Maui Juda has sufficient idle capacity to accept one-time-only special order from LA Glasses for 19,000 pairs of sunglasses at $59 per pair. Maui Juda won't acquire any variable marketing expenses for order.
Required:
a) How would accept order affect Maui Juda's operating income? Additionally to special order's effect, what other (long-term, qualitative) factors must Maui Juda's managers consider in deciding whether to accept order?
b) Maui Juda's marketing manager, Jim Revo, argues against accepting special order as the offer price of $59 is less than Maui Juda's $74 cost to make sunglasses. Revo asks you, as one of Maui Juda's staff accountants, to describe whether his analysis is right.