Tara\'s s sells tie clips for $200 The costs of producing one clip follows: Dire

Question

Tara's s sells tie clips for $200 The costs of producing one clip follows: Direct Material $90 Direct Labor $40 Variable manufacturing overhead$10 Fixed manufacturing overhead allocated $10 Variable selling and administrative costs $5 Fixed selling and administrative costs allocated $5 Tara has received a special order for a Wedding Party. The customer would like to order 10 tie clips for $155 each The factory has enough capacity to accept this order. The fixed manufacturing overhead and the fixed selling and administrative overhead would remain the same whether or not the special order was accepted Required: Should the order be accepted? Show your work.

Explanation / Answer

Solution :- Cost of accepting order for 10 tie clips = Direct material + Direct labor + Variable manufacturing overhead + Variable selling & administrative overhead.

= 90 + 40 + 10 + 5

= $ 145 per tie clip.

The customer is paying $ 155 per tie clip. Accordingly, on accepting the order of customer for 10 tie clips, There will be profit amouning to $ 100 [ 10 * (155 - 145) ] for the producer (Tara). Thererfore, The order should be accepted.

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