Problem - Maccao Soft, a division of Marvelous Software Company produces and distributes an automated payroll software system. A contribution margin income statement for Maccoa Soft for the past year is as follows:
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Revenue
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(12,000 units X $1,200)
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$14,400,000
|
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Unit Level Variable Costs
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(all variable costs are defined for 12,000 units
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|
|
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Product Materials
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$60/unit
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720,000
|
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Installation Labor Costs
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$200 /unit
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2,400,000
|
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Manufacturing Overhead
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$2 / unit
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24,000
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Shipping and Handling
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$25 /unit
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|
300,000
|
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Sales Commissions
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$300 / unit
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3,600,000
|
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Non Manuf Misc Costs
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$ 5 /unit
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|
60,000
|
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Contribution Margin
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$5 per unit
|
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7,296,000
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Fixed Costs
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|
|
|
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Research & Development
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|
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2,700,000
|
|
Legal Fees (Product Protection)
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|
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780,000
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Advertising Costs
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|
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1,200,000
|
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Rental Cost of Manuf Facility
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|
|
600,000
|
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Deprec on Production Equipment
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Note (zero market value)
|
|
300,000
|
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Other Manuf Costs (salaries, utilities, etc.)
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|
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744,000
|
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Division Level Facility Sustaining Costs
|
|
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1,730,000
|
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Allocated Company Wide Facility level Costs
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(headquarter costs)
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|
1,650,000
|
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Net Loss
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|
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(2,308,000)
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Assume that Maccoa has excess capacity. The sales staff has identified a large franchise company with 200 outlets that is interested in Maccoa's software system but is willing to pay only $800 for each system. Ignoring qualitative considerations, should Maccoa accept the special order?
The analysis related to the special order suggests that all variable costs are always relevant. Is this conclusion valid, explain your answer.