Special order with no lost sales. Eye-on-World, Inc., has a capacity of 200,000 computer monitors per year. The company is currently producing and selling 160,000 monitors per year at a selling price of $400 per monitor. The cost of producing and selling one monitor at the 160,000-unit level of activity follows:
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Variable Manufacturing Costs
|
$160
|
|
Fixed Manufacturing Costs
|
40
|
|
Variable Selling and Administrative Costs
|
80
|
|
Fixed Selling and Administrative Costs
|
20
|
|
Total Costs
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$300
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The company has received a special order for 10,000 monitors at a price of $250 per monitor. Because it need not pay a sales commission on the special order, the variable selling and administrative costs would be only $50 per monitor. The special order would have no effect on total fixed costs. The company has rejected the offer based on the following computations:
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Selling Price per Monitor
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$250
|
|
Variable Manufacturing Costs
|
160
|
|
Fixed Manufacturing Costs
|
40
|
|
Variable Selling and Administrative Costs
|
50
|
|
Fixed Selling and Administrative Costs
|
20
|
|
Net Loss per Monitor
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$(20)
|
Management is reviewing its decision and wants your advice. Should Eye-on-World have accepted the special order? Show your computations.