Question

JCBilcoJCBilco Manufacturing produces and sells oil filters for $3.15 each. A retailer has offered to purchase10,000

oil filters for $3.10 per filter. Of the total manufacturing cost per filter of $ 2.05 , $1.25 is the variable manufacturing cost per filter. For this special order, JCBilcoJCBilco would have to buy a special stamping machine that costs $6,000 to mark the customer's logo on the special-order oil filters. The machine would be scrapped when the special order is complete. This special order would use manufacturing capacity that would otherwise be idle. No variable nonmanufacturing costs would be incurred by the special order. Regular sales would not be affected by the special order.

Would you recommend that JCBilco accept the special order under these conditions?

Total Order

Incremental Analysis of Special Sales Order Decision Per Unit (10,000 units)

Revenue from special order

Less variable expense associated with the order:

2

Contribution margin

0

Increase (decrease) in operating income from the special order