Brian's Bikes produces bicycles sold to sports stores for $200 each. The plant capacity is 100,000...
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Brian's Bikes produces bicycles sold to sports stores for $200 each. The plant capacity is 100,000 units annually, but normal volume is 80,000 units. Unit and total costs at normal volume are:
Type of Cost | Unit Costs | Total Costs |
Direct materials | $60.00 | $4,800,000 |
Direct labor | $30.00 | $2,400,000 |
Manufacturing support | $50.00 | $4,000,000 |
Selling and administrative | $20.00 | $1,600,000 |
Total costs | $160.00 | $12,800,000 |
Fixed manufacturing support costs are $2,500,000, and fixed selling and administrative costs are $1,000,000.
A potential customer offers to buy 25,000 units at $150 each, requiring minimal packaging and reducing variable selling and administrative costs by 50%.
Required: Determine whether Brian's Bikes should accept this special order. Conduct a differential analysis to justify your decision.
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