Lispell Co A What Costs Are Relevant to This Decision?
B

question 56

Essay

Lispell Co.manufactures in-line skates that sell for $128 a pair.The company is currently operating at capacity,2,000 pairs.A special order from a foreign distributor for 400 pairs of skates at $120 a pair has just been received.In order to accept this order,Lispell Co.would have to give up 400 pairs of its regular sales.However,there would be no sales commission incurred on the order.Shown below are the current costs of operation:
$\begin{array}{ll}\text { Direct materials } & \$ 48 \\\text { Direct labor } & 12 \\\text { Variable overhead } & 4 \\\text { Fixed overhead } & 5(\$ 10,000 \div\text { 2,000 pairs) }\\\text { Variable selling and administrative } & 8 \text { (sales commissions) } \\\text { Fixed selling and administrative } & 4(\$ 8,000\div\text { 2,000 pairs) } \end{array}$
a. What costs are relevant to this decision?
b. Provide an incremental analysis to be used in determining whether or not the order should be accepted.
c. Are there any qualitative considerations that need to be addressed? Explain.

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Definitions:

Avolition

A lack of motivation or ability to initiate and persist in goal-directed behaviors, often seen in psychiatric disorders such as schizophrenia.

Tactile Hallucination

The false perception of physical touch or sensation on the skin without any physical cause.

Somatic Hallucination

False perceptions or sensations in the body that have no physical source, such as feeling insects crawling on the skin.

Auditory Hallucination

An experience involving hearing sounds, usually voices, that are not present in external reality.