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:

Determining Whether to Accept the Order or Not:

Therefore, the Offer Should not be Accepted by Tara, Because the Order has the Operating Loss of ($5).

Selling Price $200 Less: Direct Materials $90 Direct Labor $40 Variable Manufacturing Overhead $10 Fixed Manufacturing Overhead $10 Variable selling and administrative costs $5 Variable selling and administrative costs $5 Total Cost ($160) Operating Profit $40 Special Order (10 Tie Clips for $155 Each) $155 Less: Total Costs ($160) Operating Profit or (Loss) ($5)

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