Lily's Lamps manufactures designer lamps sold to furniture stores for $100 each. The plant capacity is...
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Accounting
Lily's Lamps manufactures designer lamps sold to furniture stores for $100 each. The plant capacity is 150,000 units annually, but normal volume is 100,000 units. Unit and total costs at normal volume are:
Type of Cost | Unit Costs | Total Costs |
Direct materials | $25.00 | $2,500,000 |
Direct labor | $20.00 | $2,000,000 |
Manufacturing support | $30.00 | $3,000,000 |
Selling and administrative | $15.00 | $1,500,000 |
Total costs | $90.00 | $9,000,000 |
Fixed manufacturing support costs are $2,500,000, and fixed selling and administrative costs are $1,200,000.
A customer offers to buy 30,000 units at $80 each, with reduced packaging lowering variable selling and administrative costs by 50%.
Required: Evaluate if Lily's Lamps should accept the special order. Prepare a financial impact analysis to support your decision.
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