A Customer Has Asked Lalka Corporation to Supply 3,000 Units

question 200

Essay

A customer has asked Lalka Corporation to supply 3,000 units of product H60, with some modifications, for $34.70 each.The normal selling price of this product is $46.35 each.The normal unit product cost of product H60 is computed as follows: Direct labor is a variable cost.The special order would have no effect on the company's total fixed manufacturing overhead costs.The customer would like some modifications made to product H60 that would increase the variable costs by $3.80 per unit and that would require a one-time investment of $24,000 in special molds that would have no salvage value.This special order would have no effect on the company's other sales.The company has ample spare capacity for producing the special order.

Required:
Determine the financial advantage or disadvantage of accepting the special order.Show your work!

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Definitions:

Equilibrium Price

The price at which the quantity of goods supplied equals the quantity of goods demanded in the market.

Purely Competitive Industry

An industry consisting of many buyers and sellers, where each firm is a price taker and the products are homogeneous.

Pure Monopoly Model

Describes a market structure in which a single seller sells a unique product in the market without any competition.

Productive Efficiency

Refers to a situation where an economy or entity cannot produce more of one good without affecting the production of another good, operating at the lowest possible cost per unit.