Anna's Appliances produces kitchen appliances sold to retailers for $500 each. The plant capacity is 200,000...
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Anna's Appliances produces kitchen appliances sold to retailers for $500 each. The plant capacity is 200,000 units annually, but normal volume is 150,000 units. Unit and total costs at normal volume are:
Type of Cost | Unit Costs | Total Costs |
Direct materials | $150.00 | $22,500,000 |
Direct labor | $100.00 | $15,000,000 |
Manufacturing support | $120.00 | $18,000,000 |
Selling and administrative | $80.00 | $12,000,000 |
Total costs | $450.00 | $67,500,000 |
Fixed manufacturing support costs are $12,000,000, and fixed selling and administrative costs are $6,000,000.
A prospective customer offers to purchase 30,000 units at $400 each, with simplified packaging reducing variable selling and administrative costs by 30%.
Required: Determine whether Anna's Appliances should accept this special order. Conduct a break-even analysis to justify your recommendation.
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