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Carter's Carpets produces high-quality carpets sold to wholesalers for $20 per square meter. The plant capacity...

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Accounting

Carter's Carpets produces high-quality carpets sold to wholesalers for $20 per square meter. The plant capacity is 2,000,000 square meters annually, but normal volume is 1,500,000 square meters. Unit and total costs at normal volume are:

  • Direct materials: $5.00 per square meter; Total: $7,500,000
  • Direct labor: $3.00 per square meter; Total: $4,500,000
  • Manufacturing support: $7.00 per square meter; Total: $10,500,000
  • Selling and administrative: $2.50 per square meter; Total: $3,750,000
  • Total costs: $17.50 per square meter; Total: $26,250,000

Fixed costs are $5,000,000 for manufacturing support and $2,000,000 for selling and administrative.

A customer offers to buy 300,000 square meters at $15 each with special packaging, lowering variable selling and administrative costs by 30%.

Required: Evaluate if Carter's Carpets should accept the special order. Include a sensitivity analysis to assess the impact of changes in the cost structure.

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