Reference no: EM132404513

Question

Louboutin Shoes, an exclusive Italian shoe manufacturer, sells their handcrafted women's fashion originals for about $300 per pair. Suppose the company incurs the following average costs per pair of shoes:

Direct Materials $80

Direct Labor 28

Variable Manufacturing Overhead 22

Variable Marketing Expenses 4

Fixed Manufacturing Overhead 32*

Total Costs (per pair) $166

* $4,000,000 Total Fixed Mfg. O/H

125,000 Pairs of Shoes

Louboutin has enough idle capacity to accept a one-time only custom special order from a specialty department store in New York and the New Jersey area for 20,000 pairs of a special design ladies summer shoe at $142 per pair. Louboutin will not incur any additional variable marketing expenses for the special order.

a. How would this special order affect Louboutin's operating income?

b. In addition to the special order's effect on current profits, what other longer-term qualitative factors should Louboutin's management consider before any decision to accept the special order opportunity?