Western Classics Publishing Company Produces Updated Versions of Literary Classics

question 88

Essay

Western Classics Publishing Company produces updated versions of literary classics targeted for children.Its bookbinding machines are capable of producing 50 books per hour.The unit-related cost of producing books is $2.50,and Western Classics sells its books for $9.50 each.Reading Ready Publishing has asked the company to produce 10,000 copies of a book for $7.50.Western Classics estimates that unit-level costs for the new book will be $3.00,and due to the size of the book,its binding machines will only be able to produce 20 books per hour.Western Classics has a total of 5,000 machine hours of capacity.In addition,to complete the special order,Western Classics will have to purchase an additional special-purpose machine that will cost $8,000.
Required:
Assume that existing demand for Western Classics's children's classics is 230,000 units and that the special order has to be either taken in full or rejected.Prepare an analysis that indicates whether or not the special order should be accepted.

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Definitions:

Contra Asset

An account on a company's balance sheet that offsets or reduces the balance of a related account.

Prepaid Expense

Expenses paid in advance for goods or services to be received in the future, treated as assets until they are actually consumed or expired.

Accounts Receivable

Receivables from clients to a corporation for products delivered or services rendered without payment.

Unearned Subscription Revenue

Unearned subscription revenue represents money received by a company for subscriptions or services not yet provided or delivered, recognized as a liability until the service is fulfilled.