Olivia's Ovens produces convection ovens sold to kitchen supply stores for $400 each. The plant capacity...
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Accounting
Olivia's Ovens produces convection ovens sold to kitchen supply stores for $400 each. The plant capacity is 50,000 units annually, but normal volume is 40,000 units. Unit and total costs at normal volume are:
Type of Cost | Unit Costs | Total Costs |
Direct materials | $120.00 | $4,800,000 |
Direct labor | $80.00 | $3,200,000 |
Manufacturing support | $100.00 | $4,000,000 |
Selling and administrative | $40.00 | $1,600,000 |
Total costs | $340.00 | $13,600,000 |
Fixed manufacturing support costs are $2,500,000, and fixed selling and administrative costs are $1,000,000.
A new client proposes buying 10,000 units at $350 each, with bulk packaging reducing variable selling and administrative costs by 40%.
Required: Determine whether Olivia's Ovens should accept this special order. Conduct a differential cost analysis to justify your decision.
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