Alpine Luggage has a capacity to produce 360,000 suitcases per year. The company is currently producing and selling 280,000 units per year at a selling price of $396 per case. The cost of producing and selling one case follows:

Variable manufacturing costs	$	160
Fixed manufacturing costs		41
Variable selling and administrative costs		75
Fixed selling and administrative costs		20
Total costs	$	296

The company has received a special order for 20,000 suitcases at a price of $249 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 $51 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	$	249
Variable manufacturing costs		160
Fixed manufacturing costs		41
Variable selling and administrative costs		51
Fixed selling and administrative costs		20
Net profit (loss) per case	$	(23	)

Required:

a. What is the impact on profit for the year if Alpine accepts the special order? (Enter your answers in thousands of dollars. Select option "higher" or "lower", keeping Status Quo as the base. Select "none" if there is no effect.)

b. Do you agree with the decision to reject the special order?

multiple choice

• Yes

• No

(All revenues and costs in $000) Status Quo Alternative 280,000 Units 300,000 Units Difference Sales revenue Variable costs: Manufacturing Selling and administrative Contribution margin Fixed costs Operating profit