Falcon Co. produces a single product. Its normal selling price is $30.00 per unit. The variable costs are $19.00 per unit. Fixed costs are $25,000 for a normal production run of 5,000 units per month. Falcon received a request for a special order that would not interfere with normal sales. The order was for 1,500 units with a special price of $20.00 per unit. Falcon has the capacity to handle the special order, and for this order, a variable selling cost of $1.00 per unit would be eliminated.
Should the special order be accepted?
A) cannot determine from the data given
B) yes
C) no
D) there would be no difference in accepting or rejecting the special order

Question

Quizplus · Accepted Answer

The special order should be accepted because the special price of $20.00 per unit covers the variable costs of $19.00 per unit, and the elimination of the $1.00 variable selling cost per unit results in no additional variable costs. Therefore, the special order contributes positively to covering fixed costs and generating profit.

Falcon Co Produces a Single Product