Anna's Apparel produces sportswear sold to retail stores for $40 each. The plant capacity is 500,000...
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Anna's Apparel produces sportswear sold to retail stores for $40 each. The plant capacity is 500,000 units annually, but normal volume is 400,000 units. Unit and total costs at normal volume are:
Type of Cost | Unit Costs | Total Costs |
Direct materials | $10.00 | $4,000,000 |
Direct labor | $8.00 | $3,200,000 |
Manufacturing support | $7.00 | $2,800,000 |
Selling and administrative | $5.00 | $2,000,000 |
Total costs | $30.00 | $12,000,000 |
Fixed manufacturing support costs are $3,000,000, and fixed selling and administrative costs are $1,500,000.
A potential customer offers to purchase 100,000 units at $30 each, with special packaging reducing variable selling and administrative costs by 40%.
Required: Determine whether Anna's Apparel should accept this special order. Prepare a cost-benefit analysis to justify your recommendation.
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