Andreasen Corporation manufactures thermostats for office buildings

Andreasen Corporation manufactures thermostats for office buildings. The following is the cost of each unit.
Materials                           $18.00
Labor                                 7.00
Variable overhead                     2.00
Fixed overhead                        9.00
($900,000 per year; 100,000 units per year)
Total                               $36.00

Simpson Company has approached Andreasen with an offer to buy 5,000 thermostats at a price of $30 each. The regular price is $50. Andreasen has the capacity to produce the 5,000 additional units without affecting its current production of 100,000 units. Simpson requires that each unit use their branding, which requires a more expensive label, resulting in an additional $1 per unit material cost. The labor cost of affixing the label will be the same as for the current models. The Simpson order will also require a one-time rental of packaging equipment for $15,000.

A. Prepare a schedule to show the impact of filling the Simpson order on Andreasen’s profits for the year.
B. Would you recommend that Andreasen accept the order?
C. Considering only profit, what is the minimum quantity of thermostats in the special order that would make it profitable assuming capacity is available?

 

 

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