Estimate 2: Snowshoe, Enc., a manufacturer of ski equipment, has been asked to sell l.000 pairs of s Iris to a discount sporting goods shop in Maine for $100 a pair. Snowshoe would not put its name on this special order, and the dealer would therefore sell the skis below their normal retail price. The capacity for Snowshoe is 25,000 pair of skis per year. The company's sales forecast for this year. excluding the special orderI is 20.000 pairs at a selling price of$l 43.?5 per unit. Snowshoe's budgeted income statement is: Budgeted Inoolne Statement Per Unit Total Sales {20,000 pairs} $4305 $2,3'i5,000 . Cost of goods sold Direct materials 3 3150 $50,000 ['20 can : hair) Direct labor at .10 seaport 34 8'51 ' Factory overhead (40% vision; :4 4s season F Total 103 .05 W0 Gross profit 5 40.1"] 8 814,000 Selling and administrative expenses 2?.50 55 0 Net income a 1.3.20 WM ( )xample 2: Special Order Relevant costs for may special order are the Incremental costs. Incremental costs in this case are the Variable costs as they are incurred additionally for this order. Fixed costs are irrelevant because there would be no additional xed costs incurred by accepting this offer. In given case, Fixed factory overhead is irrelevant. Nothing is given about selling and administrative expenses. Alternative 1': if seiiin and administrative ex: nses are considered as variabie ex-enses: Given, for special order Number of units = 1.000 pairs Selling Price = $100 per pair Direct Materials= $3150 Direct Labor - $31 10 Variable factory overhead= {$34. 45* 40%I= $13. ?8 Selling and administrative expenses= $2150 incremental Prot = iCf'ElTlEIi REVENUE - tncrernentat CDSIS Incremental Revenue = 1.000 pairs * $100 per pair = 551001000 Incremental Costs = 1.000 pairs * ($3150 + $31.10 + $13.13 + $2?.50} = 1,000 * $109.88 = $108,880 Incremental Prot $100 000- $100 880 - - $0 880 111115 there' Is an incremental loss of $0 800 and hence snowshoe should not accept the order