Time Unlimited makes grandfather clock kits that it sells to hobbyists who then assemble and finish the clocks. The company has the capacity to make 5,000 of the kits, and its current volume is 3,000 kits. The costs of a clock kit are: $300 for unit-level materials, $200 for unit-level labor, and $150 for an allocation of facility-level overhead. The normal selling price is $950. The Clock Builder has received a special order for 600 clock kits at a price of $600 each.Required: Should The Clock Builder accept the special order? Support your answer with appropriate computations.
What will be an ideal response?
| Differential revenues (600 × $600) | $ 360,000 |
| Avoidable costs: | ? |
| Unit-level materials (600 × $300) | 180,000 |
| Unit-level labor (600 × $200) | 120,000 |
| Contribution to income | 60,000 |
The special order contributes $60,000 to income; based on this information, it should be accepted.
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