Sophia's Shoes produces leather shoes sold to retail chains for $75 each. The plant capacity is...
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Sophia's Shoes produces leather shoes sold to retail chains for $75 each. The plant capacity is 300,000 pairs annually, but normal volume is 200,000 pairs. Unit and total costs at normal volume are as follows:
Type of Cost | Unit Costs | Total Costs |
Direct materials | $20.00 | $4,000,000 |
Direct labor | $15.00 | $3,000,000 |
Manufacturing support | $25.00 | $5,000,000 |
Selling and administrative | $10.00 | $2,000,000 |
Total costs | $70.00 | $14,000,000 |
Fixed manufacturing support costs are $3,500,000, and fixed selling and administrative costs are $1,500,000.
A prospective customer offers to purchase 50,000 pairs at $60 each, with simplified packaging reducing variable selling and administrative costs by 40%.
Required: Assess if Sophia's Shoes should accept the special order. Prepare a detailed profit impact statement to justify your decision.
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