Question
Alpine Luggage has a capacity to produce 420,000 suitcases per year. The company is currently producing and selling 340,000 units per year at a selling
Alpine Luggage has a capacity to produce 420,000 suitcases per year. The company is currently producing and selling 340,000 units per year at a selling price of $399 per case. The cost of producing and selling one case follows:
Variable manufacturing costs | $ | 157 | ||
Fixed manufacturing costs | 40 | |||
Variable selling and administrative costs | 84 | |||
Fixed selling and administrative costs | 21 | |||
Total costs | $ | 302 | ||
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 | 157 | ||
Fixed manufacturing costs | 40 | ||
Variable selling and administrative costs | 51 | ||
Fixed selling and administrative costs | 21 | ||
Net profit (loss) per case | $ | (20 | ) |
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