Surly company makes small boats. The company produces and sells 5,500 boats per year at a selling price of $160 per boat. Surly company has excess capacity and is trying to get special orders. A new retailer wants to purchase 1000 boats for 125 per boat. Surly company is going to decline the special order because it costs $130 to make a single boat as seen below.
Direct material $50
Direct manufacturing $55 per unit
Variable manufacturing overhead $10 per unit
Fixed manufacturing Overhead $15 per unit
Total $130 per unit
Required
A) Should surly company reject the special order from the new retailer? Why?
B) How much will surly’s net income increase with the special offer?
