Question: Name on Request Company produces a single product called Thing. The company normally produces and sells 50,000 Things each year at a selling price of $50 per unit, The company's unit costs and total costs at this level is given below:
|
Direct Materials
|
Unit Cost
$15
|
Total Cost
$750,000
|
|
Direct Labor
|
8
|
400,000
|
|
Variable Manufacturing Overhead
|
3
|
150,000
|
|
Fixed Manufacturing Overhead
|
9
|
450,000
|
|
Variable Selling Expenses
|
4
|
200,000
|
|
Fixed Selling Expenses
|
6
|
300,000
|
|
Cost per Unit and Total Cost
|
$45
|
$2,250,000
|
2. Due to a reduction in demand, Name on Request Company expects to sell only 40,000 Things to their retail outlets next year. A large discount chain has offered to purchase 10,000 Things if Name on Request is willing to accept a 16% discount off the regular price. There would be no sales commission on this order, thus variable expense would only be $1 per unit. Unfortunately Name on Request would need to purchase a custom made press to stamp the discount chain's name on the 10,000 Things. The press would cost $10,000. There is no assurance that the discount chain will purchase additional Things in the future. Determine the impact on profits next year if the special order is accepted.
Please show all calculations.