Question

4-37. Special Orders (OLO 41, 2) Alpine Luggage has a capacity to produce 200,000 suitcases per year. The company is currently producing and selling 80,000 units per year at a selling price of $160 per case. The cost of producing and selling one case follows. Variable manufacturing costs Fixed manufacturing costs Variable selling and administrative costs Fixed selling and administrative costs Total costs $ 64 16 32 The company has received a special order for 5,000 suitcases at a price of $100 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 $20 per suitcase. The special order would have no effect on total fixed costs. The company has rejected the offer based on the following computations. $100 Selling price per case Variable manufacturing costs Fixed manufacturing costs Variable selling and administrative costs Fixed selling and administrative costs Net profit (loss) per case 20 $ (8) Required a. What is the impact on profit for the year if Alpine accepts the special order? Show computations. b. Do you agree with the decision to reject the special order? Explain.

managerial accounting

Answer 1

Solution Alternative (in $000) Difference Present (in foco) 89,000 units 89000 units $500 higher $13,300 [12800+(100x5000)] sales Revenue $ 12800 (80,000x $1607 ($320) Higher less; Vaniable costs: Manufacturing ($5120) [80,000 * $64] ($ 5440) [85,000x $643 ($2660) ($100) higher [$2560+($20x5000)] selling and . admorstative ($2560)22 [80.000 x foly $80 higher $5200 ..$5120 $0 contribution Margin $ 1920 (80.000 x($16+$8) less: Fixed $ 1920 (80,000x($16+$80] costs $80 higher $3280 $3200 Operating profit speciai © No, I do not agree with the deusion to reject the will loss the firm profit of $80 order because