Special Order Decision
C 4. Metallica Can Opener Company is a subsidiary of Maltz Appliances, Inc. The can opener that Metallica produces is in strong demand. Sales this year are expected to be 1,000,000 units. Full plant capacity is 1,150,000 units, but 1,000,000 units are considered normal capacity for the current year. The following unit price and cost breakdown is applicable:
| Per Unit | |
| Sales price | $22.50 |
| Less manufacturing costs | |
| Direct materials | $ 6.00 |
| Direct labor | 2.50 |
| Overhead, variable | 3.50 |
| Overhead, fixed | 1.50 |
| Total manufacturing costs | $13.50 |
| Gross margin | $ 9.00 |
| Less selling and administrative expenses | |
| Selling, variable | $ 1.50 |
| Selling, fixed | 1.00 |
| Administrative, fixed | 1.25 |
| Packaging, variable* | 0.75 |
| Total selling and administrative expenses | $ 4.50 |
| Operating income | $ 4.50 |
*Three types of packaging are available: deluxe, $0.75 per unit; plain, $0.50 per unit; and bulk pack, $0.25 per unit.
During November, the company received three requests for special orders from large chain-store companies. Those orders are not part of the budgeted 1,000,000 units for this year, but company officials think that sufficient capacity exists for one order to be accepted. Orders received and their terms are as follows: Order 1, 75,000 can openers @ $20.00 per unit, deluxe packaging; Order 2, 90,000 can openers @ $18.00 per unit, plain packaging; Order 3, 125,000 can openers @ $15.75 per unit, bulk packaging.
Because the orders were placed directly with company officials, no variable selling costs will be incurred
1. Analyze the profitability of each of the three special orders.
2. Which special order should be accepted?
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