1. Maggie Company produces a light fixture with the following unit costs:
Direct Materials: $2
Direct Labour: $2
Variable Cost: $3
Fixed Cost: $2
UNIT TOTAL COST: $9
The production capacity is 300,000 units per year. Because of a depressed housing market, the company only expects to produce 180,000 fixtures for the coming year. The company also has fixed selling costs totalling $500,000 per year and variable selling costs of $1 per unit sold. The fixtures normally sell for $12 each.
At the beginning of the year, a customer from a geographic region outside of the areas normally served by the company offered to buy 100,000 fixtures for $7 each. The customer also offered to pay all transportation expenses. Since there would be on sales commission involved, this order would not have any variable selling expenses.
Should the company accept the order? Provide both qualitative and quantitative justification for your decision. Assume that no other orders are expected beyond the regular business and the special order.