The Deerfield Company has annual productive capacity of 60,000 units per year. Budgeted operating results for 2006 are as follows: A wholesaler from another country wants to buy 5,000 units at a price of $8 per unit. All fixed costs would remain within the relevant range. Variable manufacturing costs would be the same per unit but variable selling costs would increase by $2 per unit on the special order only.
a. Determine whether the company should produce the special order.
b. Assuming Deerfield's objective is to maximize profit, if the customer wants a special order of 20,000 units, should Deerfield accept or reject the special order?

Question

The Deerfield Company has annual productive capacity of 60,000 units per year. Budgeted operating results for 2006 are as follows:  A wholesaler from another country wants to buy 5,000 units at a price of $8 per unit. All fixed costs would remain within the relevant range. Variable manufacturing costs would be the same per unit but variable selling costs would increase by $2 per unit on the special order only.
a. Determine whether the company should produce the special order.
b. Assuming Deerfield's objective is to maximize profit, if the customer wants a special order of 20,000 units, should Deerfield accept or reject the special order?

Quizplus · Accepted Answer

The Answer of The Deerfield Company has annual productive capacity of 60,000 units per year. Budgeted operating results for 2006 are as follows:  A wholesaler from another country wants to buy 5,000 units at a price of $8 per unit. All fixed costs would remain within the relevant range. Variable manufacturing costs would be the same per unit but variable selling costs would increase by $2 per unit on the special order only.
a. Determine whether the company should produce the special order.
b. Assuming Deerfield's objective is to maximize profit, if the customer wants a special order of 20,000 units, should Deerfield accept or reject the special order?

The Deerfield Company Has Annual Productive Capacity of 60,000 Units