Alpine Luggage has a capacity to produce 370,000 suitcases per year. The company is currently producing and selling 290,000 units per year at a selling price of $399 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		22
Total costs	$	298

The company has received a special order for 40,000 suitcases at a price of $251 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	$	251
Variable manufacturing costs		160
Fixed manufacturing costs		41
Variable selling and administrative costs		51
Fixed selling and administrative costs		22
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.)

Alpine Luggage has a capacity to produce 370,000 suitcases per year. The company is currently producing and selling 290,000 units per year at a selling price of $399 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		22
Total costs	$	298

The company has received a special order for 40,000 suitcases at a price of $251 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	$	251
Variable manufacturing costs		160
Fixed manufacturing costs		41
Variable selling and administrative costs		51
Fixed selling and administrative costs		22
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

\begin{tabular}{|l|l|l|l|l|} \hline & \multicolumn{2}{|c|}{ All revenues and costs in $000)} & \\ \hline & StatusQuo290,000Units & Alternative330,000Units & \multicolumn{2}{|c|}{ Difference } \\ \hline Sales revenue & & & & higher \\ \hline Variable costs: & & & & \\ \hline Manufacturing & & & higher \\ \hline Selling and administrative & & & higher \\ \hline Contribution margin & & & higher \\ \hline Fixed costs & & & none \\ \hline Operating profit & & higher \\ \hline \end{tabular}