All required table included. please enlarge to view.
Data Table - X $ Direct materials 50 Direct labour 11 Variable manufacturing overhead. 10 Variable marketing expenses 4 Fixed manufacturing overhead $ 95 Total cost $2,700,000 total fixed manufacturing overhead / 135,000 pairs of sunglasses 4 20 GA Print Done Stenback Sunglasses sell for about $170 per pair. Suppose the company incurs the following average costs per pair. E (Click the icon to view the cost information.) Stenback has enough idle capacity to accept a one-time-only special order from LA Glasses for 20,000 pairs of sunglasses at $85 per pair. Stenback will not incur any variable marketing expenses for the order. Requirements Requirement 1. How would accepting the order affect Stenback's operating income? In addition to the special order's effect on profits, what other (longer-term qualitative) factors should Stenback's managers consider in deciding whether to accept the order? Prepare the analysis to determine the effect on operating income. (Enter a zero, "O", in an input box if there is no expected change in the expense. Use parentheses or a minus sign for an expected decrease in operating income.) Stenback Incremental Analysis of Special Sales Order Expected increase in revenues Expected increase in expenses: Variable manufacturing cost Fixed manufacturing costs Total expected increase in expenses Expected increase (decrease) in operating income In addition to the special order's effect on profits, what other (longer-term qualitative) factors should Stenback's managers consider in deciding whether to accept the order? In addition to determining the special order's effect on operating profits, Stenback's managers also should consider the following: (Select all that apply.) In addition to determining the special order's effect on operating profits, Stenback's managers also should consider the following: (Select all that apply.) A. How will Stenback's competitors react? Will they retaliate by cutting their prices and starting a price war? B. Will lowering the sale price tarnish Stenback's image as a high-quality brand? C. When should the equipment used to produce sunglasses be refurbished and at what cost? D. Will Stenback's other customers find out about the lower sale price Stenback offered to LA Glasses? If so, will these other customers demand lower sale prices? Requirement 2. Stenback's marketing manager, Jim Revo, argues against accepting the special order because the offer price of $85 is less than Stenback's $95 cost to make the sunglasses. Revo asks you, as one of Stenback's staff accountants, to write a memo explaining whether his analysis is correct. Date: To: Mr. Jim Revo, Marketing Manager From: Staff Accountant Subject: LA Glasses special order Requirement 2. Stenback's marketing manager, Jim Revo, argues against accepting the special order because the offer price of $85 is less than Stenback's $95 cost to make the sunglasses. Revo asks you, as one of Stenback's staff accountants, to write a memo explaining whether his analysis is correct. Date: To: Mr. Jim Revo, Marketing Manager From: Staff Accountant Subject: LA Glasses special order Costs that we will incur whether or not we fill the order are to our decision. This When deciding whether to accept a special order, we should compare the extra revenues we will receive against the is why comparing the $85 price LA Glasses offered us with our $95 total cost of making and selling the sunglasses is Specifically, we have enough capacity to produce the 20,000 extra pairs of sunglasses for LA Glasses' special order without increasing our Our will whether or not we accept the order, so these costs Also, as you know, we will not incur any on the special order. These costs will be the same whether or not we make the additional 20,000 pairs of sunglasses for LA Glasses, so these costs are are The extra to fill the special order are If we accept LA Glasses' special order, we will incur $extra cost per pair of sunglasses. Therefore, we should the special order from LA Glasses
