Question

Alpine Luggage has a capacity to produce 350,000 suitcases per year. The company is currently producing and selling 270,000 units per year at a selling price of $996 per case. The cost of producing and selling one case follows: $ 158 Variable manufacturing costs Fixed s ecuring was Variable Bling and instalive cools Fixed saling and administratives Total costs 5268 The company has received a special order for 30,000 Buitcases at a price of $250 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 549 per suitcase. The special order would have no cffect on batai foved casts. The company has rejected the affer based on the fallowing computations: Seling price per case Variable manufacturing cas Fixed manufacturing coats Variable selling and administrative costs Fixed seling and administrative posts Net profit loss per caso $ 119 Required: a. What is the impact on profit for the year if Alpine accept 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.) {All costs in $000) Status Quo Alternative 270,000 units 300,000 Units Difference SAIAs revenue warlahir asts: Manutach.ring Seling ard administrative Contribution margin Exed costs Operating profil b. Do you agree with the decision meat the social order? No

Answer 1

Since there is spare capacity, no additional fixed costs will be incurred on the special order
	Status Quo	Alternative	Difference
Sales Revenue	106,920,000	114,420,000	7,500,000	Higher
Variable costs
Manufacturing	42,660,000	47,400,000	4,740,000	Higher
Selling and Admin	21,060,000	22,530,000	1,470,000	Higher
Contribution Margin	43,200,000	44,490,000	1,290,000	Higher
Fixed costs	16,740,000	16,740,000	-	Same
Operating Profit	26,460,000	27,750,000	1,290,000	Higher
No, the order should be accepted since profitable