Question

Exercise 4.40 Special Order (LO 4-1, 2) Fairmount Travel Gear produces backpacks and sells them to vendors who sell them under their own label. The cost of one of its backpacks follows: Materiais Varaa d Feed Overhead (33.001,00 per year.457000 per year) Riverside Discount Mart a chain of low price stores, has asked Fairmount to supply it with 25.000 backpacks for a special promotion Riverside is planning Riversides offered to pay amount of $47 per pack. The regular sing prices $67. The special order would require some modification to the basic model. These modifications would 470 per unti l cost, 220 per cost and $120 in variable overhead cost Athough Famount has the capacity to produce the 25.000 without affecting to regular production of 457.000 nemen of e e n equipment to meet Riversides requirements would be needed. The men would be 6400 and would Famount to test up to 57.000 price bor Required a. Prepare a schedule to show the impact of thing the Riverside order on Fairmont's profits for the year or your answers in thousands rounded to decimal place as 5.400.4). Select option "Ngher" or "lower, keeping Status Quo as the base Blect "none if there is no afect) 400 400 should be red All Castle The Bear 457.000 Unit 1306100 483.000 U s 110 1220gher 8.545.9 are overhead Operating profess)

Answer 1

	Status quo	alternative	difference
Sales Revenue	30,619	31841	1222	higher
Less: variable costs
Material	8,545.9	9154.3	608.4	higher
Labor	5,803.9	6191.3	387.4	higher
Variable overhead	2,604.9	2784.3	179.4	higher
Total variable cost	16,954.7	18129.9	1175.2	higher
Contribution margin	13,664.3	13711.1	46.8	higher
Less: fixed costs	3,061.9	3126.7	64.8	higher
Operating profit	10,602.4	10584.4	-18	lower

Hence, the order should.not be accepted