Ben's Bicycles manufactures bicycles sold to sports stores for $150 each. The plant capacity is 80,000...
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Ben's Bicycles manufactures bicycles sold to sports stores for $150 each. The plant capacity is 80,000 units annually, but normal volume is 60,000 units. Unit and total costs at normal volume are:
Type of Cost | Unit Costs | Total Costs |
Direct materials | $50.00 | $3,000,000 |
Direct labor | $30.00 | $1,800,000 |
Manufacturing support | $40.00 | $2,400,000 |
Selling and administrative | $20.00 | $1,200,000 |
Total costs | $140.00 | $8,400,000 |
Fixed manufacturing support costs are $2,000,000, and fixed selling and administrative costs are $1,000,000.
A customer offers to buy 10,000 bicycles at $120 each, with bulk packaging reducing variable selling and administrative costs by 50%.
Required: Evaluate if Ben's Bicycles should accept the special order. Prepare a differential cost analysis to support your decision.
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