Question
4-37 Alpine Luggage has a capacity to produce 400,000 suitcases per year. The company is currently producing and selling 320,000 units per year at a
4-37
Alpine Luggage has a capacity to produce 400,000 suitcases per year. The company is currently producing and selling 320,000 units per year at a selling price of $395 per case. The cost of producing and selling one case follows:
Variable manufacturing costs | $ | 163 | ||
Fixed manufacturing costs | 41 | |||
Variable selling and administrative costs | 79 | |||
Fixed selling and administrative costs | 21 | |||
Total costs | $ | 304 | ||
The company has received a special order for 30,000 suitcases at a price of $252 per case. It will not have to pay any sales commission on the special order, so the variable selling and administrative costs would be only $48 per suitcase. The special order would have no effect on total fixed costs. The company has rejected the offer based on the following computations:
Selling price per case | $ | 252 | |
Variable manufacturing costs | 163 | ||
Fixed manufacturing costs | 41 | ||
Variable selling and administrative costs | 48 | ||
Fixed selling and administrative costs | 21 | ||
Net profit (loss) per case | $ | (21 | ) |
Required:
a. What is the impact on profit for the year if Alpine accepts the special order?
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