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Alpine Luggage has a capacity to produce 440,000 suitcases per year. The company is currently producing...

Alpine Luggage has a capacity to produce 440,000 suitcases per year. The company is currently producing and selling 360,000 units per year at a selling price of $402 per case. The cost of producing and selling one case follows:

Variable manufacturing costs $ 158 Fixed manufacturing costs 40 Variable selling and administrative costs 81 Fixed selling and administrative costs 18 Total costs $ 297

The company has received a special order for 30,000 suitcases at a price of $251 per case. It will not have to pay any sales commission on the special order, so the variable selling and administrative costs would be only $50 per suitcase. The special order would have no effect on total fixed costs. The company has rejected the offer based on the following computations:

Selling price per case $ 251 Variable manufacturing costs 158 Fixed manufacturing costs 40 Variable selling and administrative costs 50 Fixed selling and administrative costs 18 Net profit (loss) per case $ (15 )

Required: a. What is the impact on profit for the year if Alpine accepts the special order?

(Enter your answers in thousands of dollars. Select option "higher" or "lower", keeping Status Quo as the base. Select "none" if there is no effect.)

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Incremental analysis

Incremental revenue (30000*251) 7530000
Incremental Cost
Variable manufacturing cost (30000*158) 4740000
Variable selling and administrative cost (30000*50) 1500000
Total Incremental Cost 6240000
Incremental profit (loss) 1290000

If company accepts special order net operating income will increase by $1290000

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