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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
Accept special sales order? SureLock Manufacturing  Co.  makes  and sells several models of locks. The cost records for the ZForce lock show that manufacturing costs total $19.62 per lock. An analysis of this amount indicates that $11.90 of the total cost has a variable cost behavior pattern, and the remainder is an allocation of fixed manufacturing overhead. The normal selling price of this model is $29.00 per lock. A chain store has offered to buy 14,000 ZForce locks from SureLock at a price of $15.75 each to sell in a market that would not compete with SureLock’s regular business. SureLock has manufacturing capacity available and could make these locks without incurring additional fixed manufacturing overhead.
Required:
a.      Calculate the effect on SureLock’s operating income of accepting the order from the chain store.
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b.     If SureLock’s costs had not been classified by cost behavior pattern, is it likely that a correct special order analysis would have been made? Explain your answer.
c.      Identify the key qualitative factors that SureLock managers should consider with respect to this special order decision.
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