Bates Golf Supply produces a golf bag that sells for $220. Although the company's production capacity is 5,000 bags per year, only 4,000 bags are currently being produced and sold. The production costs for 4,000 bags are as follows:Golf Mart Stores has offered to purchase 1,000 golf bags as a one-time special purchase at a price of $170 per bag.Required:1) Prepare a quantitative analysis that indicates whether the special order should be accepted.2) What qualitative factors should be considered in this special order decision?

Question

What will be an ideal response?

Answer 1

1) Evaluation of special order:



2) Qualitative factors:
-Impact on existing customer goodwill when a special order is accepted at a below normal selling price.
-Customer would need to understand that special order prices cannot be repeated.
-Existence of sufficient idle capacity was critical to the decision to accept this special order. If a special order was accepted when there was not enough excess capacity, the special order would need to generate sufficient contribution to replace contribution lost on normal sales.