Fundamentals of Cost Accounting 2nd Edition by William Lanen, Carolyn Wells, Michael Maher

Exercise 17

Special Orders
Owls Enterprises has a capacity to produce 400,000 computer monitors per year. The company is currently producing and selling 320,000 monitors per year at a selling price of $400 per monitor. The cost of producing and selling one monitor follows:

The company has received a special order for 20,000 monitors at a price of $250 per monitor. Because it does not have to 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:

Required
Management is reviewing its decision and wants your advice. Should Owls have accepted the special order Show your computations.