The Goal One Company manufactures windows. Its manufacturing plant has the capacity to produce 12,000 windows each month. Current production and sales are 10, 000 windows per month. The company normally charges $ 300 per window.
Cost information for the current activity level is asfollows:
Variable costs that vary with number of units produced
Direct materials
$600,000
Direct manufacturing labor
450,000
Variable costs (for setups, materials handling, quality control, and so on)
that vary with number of batches, 200 batches x $1,500 per batch
300,000
Fixed manufacturing costs
300,000
Fixed marketing costs
50,000
Total costs
$1,700,000
Goal One has just received a special one-time-only order for 2 comma 000 windows at $ 250 per window. Accepting the special order would not affect thecompany’s regular business or its fixed costs. Goal One makes windows for its existing customers in batch sizes of 50 windows (200 batches x 50 windows per batch = 10, 000windows). The special order requires Goal One to make the windows in 40 batches of 50 windows.
Requirements
1. Should Goal One accept this special order? Show your calculations.
2. Suppose plant capacity were only 11,000 windows instead of 12,000
windows each month. The special order must either be taken in full or be rejected completely. Should
Goal One accept the special order? Show your calculations.3. As in requirement 1, assume that monthly capacity is 12,000 windows. Goal One is concerned that if it accepts the specialorder, its existing customers will immediately demand a price discount of $ 10 in the month in which the special order is being filled. They would argue that Goal One capacity costs are now being spread over more units and that existing customers should get the benefit of these lower costs. Should Goal One accept the special order under these conditions? Show your calculations.
Without
One-Time Only
Special Order
10,000 Windows
Revenues
Variable costs:
Direct materials
Direct manufacturing labor
Batch manufacturing costs
Fixed costs:
Fixed manufacturing costs
Fixed marketing costs
Total costs
Operating income