Piper Rose Boutique has been approached by the community col

Piper Rose Boutique has been approached by the community college to make special polo shirts for the faculty and staff. The college is willing to buy 4,000 polos with its own design for $6.00 each. The company normally sells its shirts for $12.00 each. The company has enough excess capacity to make this order. A breakdown of their costs is as follows:

1

Direct materials

$$2.00

2

Direct labor

0.50

3

Variable costs

1.50

4

Fixed costs

2.50

5

Total cost per unit

$6.50

Complete the following differential analysis and select the appropriate response in the statement following the analysis. Below the analysis, indicate whether Piper Rose should accept or decline the special order.

omplete the following differential analysis and select the appropriate response in the statement following the analysis. Below the analysis, indicate whether Piper Rose should accept or decline the special order.

1

Differential revenue from accepting offer

2

Differential costs of additional units

3

Differential income (loss)

Piper Rose Boutique should:

accept the order for the additional units

decline the order for the additional units

1	Direct materials	$$2.00
2	Direct labor	0.50
3	Variable costs	1.50
4	Fixed costs	2.50
5	Total cost per unit	$6.50

Solution

Differential revenue from accepting offer 24000 =4000*6 Differential costs of additional units 16000 =4000*(2+0.5+1.5) Differential income (loss) 8000 Piper Rose Boutique should accept the order for the additional units