Gator Corporation manufactures camping equipment. One of the Gator’s most popular products is its T1012 tent which the company sells for $28 each. Gator sells about 9,000 T1012 tents each year through its mail-order business. Another camping equipment company, TreeClimb Corporation has approached Gator about purchasing 2,000 T1012 tents.

The tents would be the same as the T1012 except they would bear the TreeClimb brand.

TreeClimb is willing to pay $20 per tent. Although Gator has plenty of plant capacity to produce the additional 2,000 tents, the company’s manufacturing cost is $23 per unit, or $3 more per tent than TreeClimb is willing to pay. The following per unit information pertains to Gator’s cost to produce 9,000 T1012 tents:

Required:

a. By what amount would Gator’s operating income increase or decrease if the company accepts the special order?

b. Discuss the qualitative aspects of this special order decision.

Transcribed Image Text:

Direct material Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total $ 9 4 2 8 $23