Extra shift decision The manufacturing capacity of Ritter Rotator Company's plant facility is 60,000 rotators per quarter. Operating results for the first quarter of 2000 are as follows:

A foreign distributor has offered to buy 30,000 units at $9 per unit during the second quarter of 2000. Domestic demand is expected to remain the same as in the first quarter.
REQUIRED

(a) Determine the impact on operating income if Ritter accepts this order. What other considerations are relevant in this decision?

(b) Assume that Ritter decides to run an extra shift so that it can accept the foreign order without foregoing sales to its regular domestic customers. The proposed extra shift would increase capacity by 25% and increase fixed costs by $25,000. Determine the impact on operating income if Ritter oper¬ ates the extra shift and accepts the export order. What other considerations are relevant in this decision?(LO 2, 3)

Transcribed Image Text:

Sales (36,000 units @ $10) Variable manufacturing and selling costs Contribution margin Fixed Costs Operating income $360,000 198,000 $162,000 99,000 $63,000