Ellis Quilting Company makes blankets that it markets through a variety of department stores. It makes the blankets in batches of 1,000 units

Price: $1.99


Problem 13-23 Effect of order quantity on special order decisions

Ellis Quilting Company makes blankets that it markets through a variety of department stores. It makes the blankets in batches of 1,000 units. Ellis made 20,000 blankets during the prior accounting period. The cost of producing the blankets is summarized her.

Materials cost ($25 per unit x 20,000)	500,000
Labor cost ($22 per unit x  20,000)	440,000
Manufacturing supplies ($2 x  20,000)	40,000
Batch-level costs (20 batches at $4,000 per batch)	80,000
Product-level costs	160,000
Facility-level costs	290,000
Total costs	1,510,000
Cost per unit = $1,510,000 / 20,000 = $75.50

Required
a. Kent Motels has offered to buy a batch of 500 blankets for $56 each. Ellis’s normal selling
price is $90 per unit. Based on the preceding quantitative data, should Ellis accept the special
order? Support your answer with appropriate computations.
b. Would your answer to Requirement a change if Kent offered to buy a batch of 1,000 blankets
for $56 per unit? Support your answer with appropriate computations.
c. Describe the qualitative factors that Ellis Quilting Company should consider before accepting
a special order to sell blankets to Kent Motels.