Henry's Hats manufactures luxury hats sold to boutique stores for $100 each. The plant capacity is...
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Accounting
Henry's Hats manufactures luxury hats sold to boutique stores for $100 each. The plant capacity is 100,000 units annually, but normal volume is 70,000 units. Unit and total costs at normal volume are as follows:
Type of Cost | Unit Costs | Total Costs |
Direct materials | $25.00 | $1,750,000 |
Direct labor | $20.00 | $1,400,000 |
Manufacturing support | $30.00 | $2,100,000 |
Selling and administrative | $15.00 | $1,050,000 |
Total costs | $90.00 | $6,300,000 |
Fixed manufacturing support costs are $2,000,000, and fixed selling and administrative costs are $800,000.
A customer offers to buy 20,000 units at $80 each, with bulk packaging reducing variable selling and administrative costs by 50%.
Required: Assess if Henry's Hats should accept the special order. Prepare a comprehensive cost analysis to support your decision.
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