Answer:
$
Special order of sofa 3,000
Less: Relevant cost of production:
Direct material & direct labour ($100 x 10) <u>1,000</u>
Incremental benefits <u> 2,000</u>
Adams Furniture should accept the special order because the incremental benefit is $2,000
If Adams Furniture Operates at Full Capacity $
Sales of sofa (10 x $500) 5,000
Les: Relevant cost of production
Direct material & direct labour ($100 x 10) 1,000
Incremental benefits 4,000
In this case, Adams Furniture should not accept the special order because the incremental benefit of the special order is less than the incremental benefit at full capacity. Adams Furniture can only accept the special order if the buyer is ready to pay $500 per order as against the $300 per sofa offered by the buyer.
Explanation:
