Fineprint Company
Should Fineprint Company accept the special order or not?
First of all, the order Abbie Jenkins offers is a one-time-only special order beacause he mentioned they don’t do much of this type of stuff. As a result, we should consider if there is idle production capacity or not. Then we found that John’s company doesn’t have such capacity at the moment to handle the special order. This will to some extent leads the decision to a rejecting direction.
Secondly, we look into the cost aspect about the original orders and the new one-time-only special order, assuming all the brochures produced can be sold out.
As shown above, I conclude that Finprint Company should not accept the one-time-only special order. There are two reasons: 1. Because there is no extra capacity to handle the special order, Company must use extra fixed direct labor, fixed manufacturing overhead, fixed sales cost, and fixed corporate cost to produce the 25,000 brochures. This results in a negative operating income that company will generate. 2. The assumption of no long-run or strategic implications is crucial to management’s analysis of the one-time-only special order decision. The future revenues from regular customers will differ depending on whether the special order is accepted or rejected. Accepting the special order means that company has to cut down some orders from regular customers. That will probably affect the loyalty of some regular customers.
From the analysis above, Fineprint Company would rather reject this one-time-only special order than accepting the order.
However in order to set up the goodwill of the company and broaden the business, Fineprint Company should again negotiate with Abbie Jenkins at the price aspect. Only ...