One Kings Lane Corporation Manufactures a Single Product with the Following

Essay

One Kings Lane Corporation manufactures a single product with the following unit costs for 10,000 units: $\begin{array}{lr}\text { Direct materials } & \$ 75 \\\text { Direct labour } & 40 \\\text { Manufacturing overhead (40\% variable) } & 90 \\\text { Selling expenses ( } 60 \% \text { variable) } & 30 \\\text { Administrative expenses (20\% variable) } & 15\\\text { Total per unit }&\$250\end{array}$ Recently, a company approached One Kings Lane Corporation about buying 2,000 units for $250. Currently, the models are sold to dealers for $450. One Kings Lane's capacity is sufficient to produce the extra 3,000 units. Selling expenses would be incurred as normal on the special order.
Required:
A. Calculate the profit earned by One Kings Lane on the original 10,000 units.
B. Should One Kings Lane accept the special order if its goal is to maximize short-run profits? How much will income be affected?
C. Determine the minimum price One Kings Lane would want to receive in order to increase profits by $15,000 on the special order.
D. When making a special order decision, what qualitative aspects of the decision should One Kings Lane Corporation consider?