Question
A company at present operates at 80% capacity producing 50,000 units per year. A budget for the year is: An order is received from Chile
A company at present operates at 80% capacity producing 50,000 units per year. A budget for the year is:
An order is received from Chile for 5,000 units at $6 F.O.B. (buyer to pay for shipping costs). Special export packing will increase manufacturing costs by $0.50 per unit on this order. In addition, the present variable selling and administrative costs will be reduced to $0.20 per unit (on this order). A commission of 10% on sale price will be payable to the Chilean agent.
You are required to:
1. Calculate the increase or decrease in total profit if this order is accepted.
2. Discuss factors, other than profit consideration, that should be taken into account in considering short-term special order price decisions.
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