Question: Special-Order Decision Rianne Company produces a light fixture with the following unit cost:
The production capacity is 300,000 units per year. Because of a depressed housing market, the company expects to produce only 180,000 fixtures for the coming year. The company also has fixed selling costs totaling $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 the area normally served by the company offered to buy 100,000 fixtures for $7 each. The customer also offered to pay all transportation costs. Since there would be no sales commissions involved, this order would not have any variable selling costs.
Required: 1. Conceptual Connection: Based on a quantitative (numerical) analysis, should the company accept the order?
2. Conceptual Connection: What qualitative factors might impact the decision? Assume that no other orders are expected beyond the regular business and the special order.