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For The Ages inc. produces solid-oak umbrella stands. Each stand in handmade and hand finished...

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Accounting

For The Ages inc. produces solid-oak umbrella stands. Each stand in handmade and hand finished using the finest materials available. The firm has been operating at capacity (2,000 stands per year) for the past three years. based on this capacity of operations, the firm's costs per stand are as follows:

Direct material $50

Direct labor 40

Variable overhead 10

Fixed overhead 30

Total cost 130

All selling and administrative expenses incurred by the firm are fixed. The average selling price of stands is $230. Recently, a large retailer approached Bill Wood, the president For The Ages, about supplying three special stands to give as gifts to CEOs of key supplier. Wood estimates that the following per-unit costs would be incurred to make the three stands:

Direct material $250

Direct labor 350

Variable overhead 90

Total cost 690

To accept the special order, the firm would have to sacrifice production of 20 regular units.

a. Identify all relevant costs that Wood should consider in deciding whether to accept the special order.

b. Assume the retailer offers to pay For The Ages a total of $3,800 for the three stands. How would accepting he offer affect For The Ages' pre-tax income?

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