Sandy’s Paint Shop paints exterior surfaces for commercial and residential customers. It charges $175 per hour for a crew of painters. For March 2020, Sandy expects the crew to operate at 80% of capacity, 160 hours of the 200 hours available that month.

Operating income for March 2020 is anticipated to be as follows:

Jenny’s Pizza has approached Sandy to paint its storefronts for $150 per hour. The job needs to be done in March 2020 and is expected to take 60 hours of the crew time. It is not expected to change fixed painting costs. There are no marketing or additional administrative costs associated with the Jenny job. Sandy must either take the entire job or none of it.

Required

1. Should Sandy’s Paint Shop accept the special order? Show your calculations.
2. Perry’s Paint Shop has offered to provide paint and a crew to Sandy for $125 per hour if she needs help  in March 2020. Should Sandy 

(a) Accept the special order and reject Perry’s offer, 

(b) Accept the special order and accept Perry’s offer or 

(c) Reject the special order. Show your calculations.
3. What other factors should Sandy consider in choosing among the three alternatives in requirement 2?

Transcribed Image Text:

Revenues ($175 x 160) Variable cost, including paint and labor ($100 x 160) Fixed painting costs Fixed marketing costs Fixed administrative costs Total costs Operating income $28,000 16,000 2,500 3,000 3,500 25,000 $ 3,000