The Following Information Relates to a One-Time Special Order from a Flood

question 66

Essay

The following information relates to a one-time special order from a flood relief organization for 200 of its book bags at $8.50. Current manufacturing costs are as follows. $\begin{array} { l r } \text { Direct Material per bag } & \$ 3.24 \\\text { Direct Labor } & 4.21 \\\text { Variable Manufacturing Overhead } & .55 \\\text { Variable Selling costs } & .76 \\\text { Fixed Manufacturing Overhead } & 1.25\end{array}$ Fixed manufacturing overhead is based on capacity of 4,500 units per year. Normal sales are 4,000 book bags per year. Only $0.46 of the selling costs will be incurred for this special order. What are the relevant costs regarding this special order? Pose one nonfinancial consideration regarding the acceptance or rejection of this special offer.

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Definitions:

Binding Price Floor

A government-imposed price control or limit that sets a minimum price above the equilibrium price, leading to surplus in the market.

Price Paid

The actual amount of money exchanged for a good or service.

Supply and Demand

Fundamental economic model describing how prices and quantities of goods and services are determined in a market based on the relationship between the quantity supplied and the quantity demanded.

Price Floor

A government or regulatory minimum price set for a commodity, below which it cannot legally be sold.