Parkland Sunglasses sell for about $ 154 per pair. Suppose that the company incu

Question

Parkland Sunglasses sell for about $ 154 per pair. Suppose that the company incurs the following average costs per? pair:

Parkland has enough idle capacity to accept a? one-time-only special order from Montana Shades for $24,000 pairs of sunglasses at $73 per pair. Parkland

will not incur any variable selling expenses for the order.

40 Direct materials Direct labor Variable manufacturing Variable selling expenses Fixed manufacturing overhead Total cost $2,000,000 Total fixed manufacturing overhead/100,000 Pairs of sunglasses 12 overhead 20. 81

Explanation / Answer

The additional revenues and the additional costs that we will incur to fill the special order are relevant. If we accept the Montana Shades special order, we will incur only $59 of additional cost per pair, which is less than the $73 price per pair Montana Shades offered. Therefore, we should accept the special order to increase the company’s operating income.

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