2. Hilton Stenback Sunglasses sell for about $135 per pair. Suppose the company incurs the following average costs per pair. (Click the icon to view the cost information.) Hilton Stenback has enough idle capacity to accept a one-time-only special order from Alaska Glasses for 17,000 pairs of sunglasses at $106 per pair. Hilton Stenback will not incur any variable marketing expenses for the order Read the requirements Requirement 1. How would accepting the order affect Hilton Stenback's operating income? In addition to the special order's effect on profits, what other (longer-term qualitative) factors should Hilton Stenback's managers consider in deciding whether to accept the order? Prepare an incremental analysis to determine the special order's effect on operating income. (Enter a "O" for any zero balances. Use parentheses or a minus sign to indicate a decrease in operating income from the special order.) Total Order Incremental Analysis of Special Sales Order Decision Per Unit (17,000 units) Revenue from special order Loss variable expense associated with the order Variable manufacturing costs Contribution margin Less: Additional fixed expenses associated with the order Increase (decrease) in operating income from the special order In addition to determining the special order's effect on operating profits, Stenback's managers also should consider the following: O A. Will Hilton Stenback's other customers find out about the lower sale price Hilton Stenback offered to Alaska Glasses? If so, will these other custome demand lower sale prices? OB. Will lowering the sale price tarnish Hilton Stenback's image as a high-quality brand? OC. How will Hilton Stenback's competitors react? Will they retaliate by cutting their prices and starting a price war? OD. All of the above O E. None of the above tomers Requirement 2. Hilton Stenback's marketing manager, Jim Revo, argues against accepting the special order because the offer price of $106 is less than Hilton Stenback's $115 cost to make the sunglasses. Revo asks you, as one of Hilton Stenback's staff accountants, to explain whether his analysis is correct. 60 14 12 4 When deciding whether to accept a special order, we should compare the extra revenues we will receive against the (1) Costs that we will incur whether or not we fill the order are (2) - to our decision. This is why comparing the $106 price Alaska Glasses offered us with our $115 total cost of making and selling the sunglasses is (3) 1: Data Table Direct materials Direct labor Variable manufacturing overhead ..... Variable marketing expenses....... Fixed manufacturing overhead ... Total cost * $2,000,000 total fixed manufacturing overhead 80,000 pairs of sunglasses 2: Requirements 1. How would accepting the order affect Hilton Stenback's operating income? In addition to the special order's effect on profits, what other (longer-term qualitative) factors should Hilton Stenback's managers consider in deciding whether to accept the order? 2. Hilton Stenback's marketing manager, Jim Revo, argues against accepting the special order because the offer price of S106 is less than Hilton Stenback's $115 cost to make the sunglasses. Revo asks you, as one of Hilton Stenback's staff accountants to explain whether his analysis is correct. 250 115 (1) extra costs we will incur to fill the order, extra fixed costs we will incur to fill the order. total costs of making the sunglasses. (2) irrelevant relevant (3) O correct misleading