Alexon SL is an electronics business with eight product lines. Profit data for one of the products

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Alexon SL is an electronics business with eight product lines. Profit data for one of the products (XT-107) for the month just ended (June 2016) are as follows:
Alexon SL is an electronics business with eight product lines.

Xuclà Mecàniques Fluvià SA, an instruments company, has a problem with its preferred supplier of XT-107 component products. This supplier has had a three-week strike and will not be able to supply Xuclà 3000 units next month. Xuclà approaches the sales representative of Alexon SL, Angela Zamora, about providing 3000 units of XT-107 at a price of ‚¬80 per unit. Zamora informs the XT-107 product manager, Francisco García-Salve, that she would accept a flat commission of ‚¬6000 rather than the usual 15% if this special order were accepted. Alexon has the capacity to produce 300 000 units of XT-107 each month, but demand has not exceeded 200 000 units in any month in the last year.
Required
1. If the 3000-unit order from Xuclà is accepted, what will be the effect on monthly operating profit? (Assume the same cost structure as occurred in June 2016.)
2. Francisco ponders whether to accept the 3000-unit special order. He is afraid of the precedent that might be set by cutting the price. He says, 'The price is below our full cost of ‚¬95 per unit. I think we should quote a full price, or Xuclà will expect favoured treatment again and again if we continue to do business with them.' Do you agree with Francisco? Explain.

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Management and Cost Accounting

ISBN: 978-1292063461

6th edition

Authors: Alnoor Bhimani, Charles T. Horngren, Srikant M. Datar, Madhav V. Rajan

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