Generalware, Inc A Foreign Company Wants to Purchase 15,000 Units

Essay

Generalware, Inc. sells a single product and reports the following results from sales of 100,000 units:
$\begin{array}{llr} \text {Sales (\$45 unit) } &\$4,500,000\\ \text { Less costs and expenses:} &\\ \text { Direct materials (\$16/unit). } &\$1,600,000\\ \text { Direct labor (\$9/unit).} &900,000\\ \text { Variable overhead (\$3/unit). } &300,000\\ \text {Fixed overhead (\$8.10/unit) } &810,000\\\text { Variable administrative (\$4.50/unit)} &450,000\\ \text { Fixed administrative (\$4/unit)} &400,000\\ \text {Total costs and expenses } &\$(4,460,000)\\ \text { Operating income } &\$40,000\end{array}$
A foreign company wants to purchase 15,000 units. However, they are willing to pay only $36 per unit for this one-time order. They also agree to pay all freight costs. To fill the order, Generalware
will incur normal production costs. Total fixed overhead will have to be increased by $60,000 to pay for equipment rentals and insurance. No additional administrative costs (variable or fixed) will be incurred in association with this special order.
Required:
(1) Should Generalware accept the order if it does not affect regular sales? Explain.
(2) Assume that Generalware can accept the special order only by giving up 5,000 units of its normal sales. Should the company accept the special order under these circumstances?