Question

Part 2 contains 3 Decision making recommendations that are independent of each other worth 2 pts. Each for a total of 6 pts.  Covers material in Module 17
Decision Making  #1-Special Order
Snider, Inc., which has excess capacity, received a special order for 2,000 units at a price of $15 per unit which it could produce with the excess capacity.
Currently, production and sales are anticipated to be 10,000 units without considering the special order. Budget information for the current year sales of 10,000 units follows.
	Sales	$200,000
	Less: cost of goods sold	150,000
	Gross Margin	$50,000
Cost of goods sold includes $25,000 of fixed manufacturing cost.
Required:
If the special order is accepted, calculate how much the  company's gross margin will change.  Make sure you show your work and explain if you would
accept or not accept this special order and why?
Recommendation:

Answer 1

Cost of goods sold = $150,000

Fixed manufacturing cost = $25,000

Variable manufacturing cost = $150,000 - $25,000 = $125,000

Variable manufacturing cost per unit = $125,000 / 10,000 = $12.5

Relavent costs in decision making = Variable maufacturing costs

Special order revenues (2,000 * $15)	$30,000
Cost associated with the special order (2,000 * $12.5)	$25,000
Profit from the special order	$5,000

If the company accepts the special order, the gross margin - Will increase by $5,000.

The special order is acceptable as it increases the gross margin.