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

question 76

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:
$\begin{array}{|lc}\text { Direct materials } & \$ 48 \\\text { Direct labor } & 12 \\\text { Variable overhead } & 4 \\\text { Fixed overhead } & 5(\$ 10,000\div 2,000 \text { pairs) } \\\text { Variable selling and administrative } & 8 \text { (sales commissions) } \\\text { Fixed selling and administrative } & 4(\$ 8,000\div2,000 \text { pairs) }\end{array}$

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:

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Substances whose production, sale, or use is prohibited by law due to their potential for abuse and harm.

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A plant used for its psychoactive and medicinal properties, often referred to by names like marijuana.

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A powerful opioid pain medication used to treat moderate to severe pain, with properties that can lead to dependence and abuse.