Okay, another turn for you. ABC Company receives a one-time special order, for 1,000 custom-printed gift bags for a regional conference, at a price of $18 per bag. Managers of the company consult with their accountant to understand their costs and are presented with the following information. Direct material of variable cost is $8, direct labor, also a variable cost, is $4. Variable manufacturing overhead is $3.00, variable selling costs are $1.50. Fixed manufacturing overhead is $2.00, and fixed selling and administrative costs are $2.50. So the bags each have a total cost of $21.00 Follow the steps in our decision making framework, and see if you can answer the following questions. What is the decision to be made? Here, you can assume that the company has the necessary capacity. What are the alternatives? What information is relevant to making the decision? And which alternative should the company choose? Take a few minutes, give it a try, and then come back and we'll see how you did. And I'll meet you at the light board. All right, here we are again, how did that one go? I bet we're starting to catch on pretty quickly here. Let's take a look at what we've got. We've got a couple of alternatives, we can reject the special order or we can accept the special order. So lets make sure we get those here on the board here, we can reject or we can accept. So two alternatives, all right,? Now, notice if we reject the special order, everything stays at the status quo. We don't generate any additional revenues. We don't incur any additional costs. And so the additional profit associated with rejecting is absolutely nothing. So let's now take a look at the accept alternative. If we accept the special order, we'll sell 1000 units, and we'll sell at the price of $18.00. So I'm just going to put the per-unit benefit here. And there's 1000 units so let's get $18,000 there as the incremental benefit associated with accepting the special order. If we accept the special order, we're going to incur some additional cost, what would those be? Well, remember our fixed cost will not go up as a result of accepting the special order. But what will go up is the variable cost for every unit, additional unit, that we make. So let's look over here and identify our variable cost. Direct material? Yes, that was variable, we were told that. Direct labor? Variable manufacturing overhead and variable selling cost. And these two remaining are fixed cost. So let's see, 8 and 4 is 12, 13, 14,15, 16, 16.50 in variable cost, 16.50 per unit. So if we accept the special order, we're going to incur an additional 16.50 per unit, okay? Let's put that here. And with 1,000 units, that means we're incurring an additional $16,500 in cost. So the contribution margin here is the additional profit that we contribute, which is an additional $1,500. So by accepting the special order, we would contribute an additional $1,500 to profit. So we should choose to accept the special order.