Lucas's Luggage manufactures travel bags sold to department stores for $120 each. The plant capacity is...
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Lucas's Luggage manufactures travel bags sold to department stores for $120 each. The plant capacity is 200,000 units annually, but normal volume is 150,000 units. Unit and total costs at normal volume are:
Type of Cost | Unit Costs | Total Costs |
Direct materials | $40.00 | $6,000,000 |
Direct labor | $30.00 | $4,500,000 |
Manufacturing support | $25.00 | $3,750,000 |
Selling and administrative | $15.00 | $2,250,000 |
Total costs | $110.00 | $16,500,000 |
Fixed manufacturing support costs are $5,000,000, and fixed selling and administrative costs are $2,500,000.
A potential customer offers to buy 30,000 units at $100 each, with simplified packaging reducing variable selling and administrative costs by 50%.
Required: Evaluate if Lucas's Luggage should accept the special order. Prepare a cost-volume-profit analysis to support your decision.
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