John's Jackets manufactures winter jackets sold to retail stores for $80 each. The plant capacity is...
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Accounting
John's Jackets manufactures winter jackets sold to retail stores for $80 each. The plant capacity is 200,000 units annually, but normal volume is 150,000 units. Unit and total costs at normal volume are as follows:
Type of Cost | Unit Costs | Total Costs |
Direct materials | $25.00 | $3,750,000 |
Direct labor | $20.00 | $3,000,000 |
Manufacturing support | $15.00 | $2,250,000 |
Selling and administrative | $10.00 | $1,500,000 |
Total costs | $70.00 | $10,500,000 |
Fixed manufacturing support costs are $2,500,000, and fixed selling and administrative costs are $1,000,000.
A potential customer offers to purchase 50,000 units at $60 each, with minimal packaging reducing variable selling and administrative costs by 50%.
Required: Assess if John's Jackets should accept the special order. Prepare a variable cost analysis to support your decision.
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