Karen's Kitchenware produces kitchen utensils sold to department stores for $10 each. The plant capacity is...
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Accounting
Karen's Kitchenware produces kitchen utensils sold to department stores for $10 each. The plant capacity is 1,500,000 units annually, but normal volume is 1,000,000 units. Unit and total costs at normal volume are:
Type of Cost | Unit Costs | Total Costs |
Direct materials | $3.00 | $3,000,000 |
Direct labor | $2.00 | $2,000,000 |
Manufacturing support | $3.00 | $3,000,000 |
Selling and administrative | $1.50 | $1,500,000 |
Total costs | $9.50 | $9,500,000 |
Fixed manufacturing support costs are $2,500,000, and fixed selling and administrative costs are $1,000,000.
A wholesale customer offers to purchase 200,000 units at $8 each, with simplified packaging reducing variable selling and administrative costs by 60%.
Required: Evaluate if Karen's Kitchenware should accept the special order. Prepare a cost-volume-profit analysis to support your decision.
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