Sam's Shoes manufactures athletic shoes sold to sporting goods stores for $60 each. The plant capacity...
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Accounting
Sam's Shoes manufactures athletic shoes sold to sporting goods stores for $60 each. The plant capacity is 300,000 pairs annually, but normal volume is 250,000 pairs. Unit and total costs at normal volume are as follows:
Type of Cost | Unit Costs | Total Costs |
Direct materials | $15.00 | $3,750,000 |
Direct labor | $12.00 | $3,000,000 |
Manufacturing support | $18.00 | $4,500,000 |
Selling and administrative | $8.00 | $2,000,000 |
Total costs | $53.00 | $13,250,000 |
Fixed manufacturing support costs are $2,500,000, and fixed selling and administrative costs are $1,500,000.
A customer offers to buy 60,000 pairs at $45 each, with simplified packaging reducing variable selling and administrative costs by 40%.
Required: Evaluate if Sam's Shoes should accept the special order. Prepare a cash flow analysis to support your decision.
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