Easton Company has a capacity to produce 250,000 comnputer monitors per year. The company is currently...

Easton Company has a capacity to produce 250,000 comnputer monitors per year. The company is currently producing and selling 200,000 monitors per year at a selling price of $290 per monitor. The cost of producing and selling one monitor at the 200,000 unit level of activity is given in the table below:
Direct Material cost	$ 60
Direct Labor cost	$ 20
Variable manufacturing cost	$ 20
Fixed manufacturing cost	$ 22
Variable selling and administrative cost	$ 50
Fixed selling and administrative cost	$ 20
Total cost per unit	$ 192

The company has received a special order for 20,000 monitors at a unit price of $150. The company does not have to pay sales commission to the salesmen for the special order. Currently, the company pays a sales commission of $30 per monitor to its salesmen. The special order will have no effect on its fixed costs. The marketing manager has rejected the special order based on the following computation:
Special order price		$ 150
Cost per monitor	$ 192
Less: sales commission avoided	$ 30
Cost per monitor for the special order		$ 162
Net loss per monitor for the special order		$ (12)
Required:
a) You are reviewing the marketing manager's decision. What would you do? Would you accept or reject the order? Show computations to support your decision, especially the impact on company's profits from the special order (4 points)
b) Regardless of what you answered in part (a), what is the minimum acceptable price for the special order? (3 points)
c) Suppose the firm is selling 240,000 monitors currently. If the company wants to accept the special order, what is the minimum acceptable price? Assume that the cost structure given for an actitivy level of 200,000 monitors is applicable at this level of activity as well (4 points)

Expert Solution

ekkarill92 answered 2 years ago

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