Should maccoa accept the special order

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Reference no: EM131829680

Problem - Maccao Soft, a division of Marvelous Software Company produces and distributes an automated payroll software system. A contribution margin income statement for Maccoa Soft for the past year is as follows:

Revenue

(12,000 units X $1,200)

 

$14,400,000

Unit Level Variable Costs

(all variable costs are defined for 12,000 units

 

 

Product Materials

$60/unit

 

720,000

Installation Labor Costs

$200 /unit

 

2,400,000

Manufacturing Overhead

$2 / unit

 

24,000

Shipping and Handling

$25 /unit

 

300,000

Sales Commissions

$300 / unit

 

3,600,000

Non Manuf Misc Costs

$ 5 /unit

 

60,000

Contribution Margin

$5 per unit

 

7,296,000

Fixed Costs

 

 

 

Research & Development

 

 

2,700,000

Legal Fees (Product Protection)

 

 

780,000

Advertising Costs

 

 

1,200,000

Rental Cost of Manuf Facility

 

 

600,000

Deprec on Production Equipment

Note (zero market value)

 

300,000

Other Manuf Costs (salaries, utilities, etc.)

 

 

744,000

Division Level Facility Sustaining Costs

 

 

1,730,000

Allocated Company Wide Facility level Costs

(headquarter costs)

 

1,650,000

Net Loss

 

 

(2,308,000)

Assume that Maccoa has excess capacity. The sales staff has identified a large franchise company with 200 outlets that is interested in Maccoa's software system but is willing to pay only $800 for each system. Ignoring qualitative considerations, should Maccoa accept the special order?

The analysis related to the special order suggests that all variable costs are always relevant. Is this conclusion valid, explain your answer.

Reference no: EM131829680

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