Mason's Mattresses produces high-quality mattresses sold to retailers for $400 each. The plant capacity is 200,000...
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Mason's Mattresses produces high-quality mattresses sold to retailers for $400 each. The plant capacity is 200,000 units annually, but normal volume is 150,000 units. The unit and total costs at normal volume are as follows:
Type of Cost | Unit Costs | Total Costs |
Direct materials | $120.00 | $18,000,000 |
Direct labor | $80.00 | $12,000,000 |
Manufacturing support | $100.00 | $15,000,000 |
Selling and administrative | $60.00 | $9,000,000 |
Total costs | $360.00 | $54,000,000 |
Fixed costs are $5,000,000 for manufacturing support and $2,000,000 for selling and administrative.
A new customer has proposed to purchase 50,000 mattresses at $300 each. The customer requires special packaging, which reduces variable selling and administrative costs by 40%.
Required: Evaluate if Mason's Mattresses should accept the special order. Include a sensitivity analysis to assess the impact of changes in the cost structure.
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