FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Question
The manufacturing plant of Carilla Ltd. specializes in crafting specialized pieces for carnival.
With a monthly production capacity of 15,000 pieces, the company currently manufactures and
sells 11,000 pieces per month. Typically priced at $200 per piece, the company's cost
breakdown for the ongoing production level is outlined below:
Variable costs that vary with number of units produced
Direct materials $ 440,000
Direct manufacturing labor 495,000
Variable costs (for setups, materials handling, quality control, etc.)
that vary with number of batches, 220 batches * $500 per batch 110,000
Fixed
Fixed manufacturing
Fixed marketing costs 200,000
Total costs $1,545,000
Carilla has just received a special one-time-only order for 4,000 pieces at $150 per piece.
Accepting the special order would not affect the company’s regular business. Carilla makes
pieces for its existing customers in batch sizes of 50 pieces (220 batches 50 pieces per batch =
11,000 pieces). The special order requires Carilla to make the pieces in 40 batches of 100 each.
Required
1. Should Carilla accept this special order? Show your calculations.
2. Suppose plant capacity were only 13,000 pieces instead of 15,000 pieces each month. The
special order must either be taken in full or be rejected completely. Should Carilla accept the
special order? Show your calculations.
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