Reference no: EM132770031

Vernon Company manufactures a personal computer designed for use in schools and markets it under its own label. Vernon has the capacity to produce 28,000 units a year but is currently producing and selling only 17,000 units a year. The computer's normal selling price is $1,800 per unit with no volume discounts. The unit-level costs of the computer's production are $430 for direct materials, $230 for direct labor, and $150 for indirect unit-level manufacturing costs. The total product- and facility-level costs incurred by Vernon during the year are expected to be $2,230,000 and $813,000, respectively. Assume that Vernon receives a special order to produce and sell 3,170 computers at $1,230 each.

Required

Problem 1: Calculate the contribution to profit from the special order. Should Vernon accept or reject the special order?