Question
Fairmount Travel Gear produces backpacks and sells them to vendors who sell them under their own label. The cost of one of its backpacks follows:
Fairmount Travel Gear produces backpacks and sells them to vendors who sell them under their own label. The cost of one of its backpacks follows:
Materials | $ | 19.70 | ||
Labor | 13.70 | |||
Variable overhead | 6.70 | |||
Fixed overhead ($3,595,900 per year; 467,000 units per year) | 7.70 | |||
Total | $ | 47.80 | ||
Riverside Discount Mart, a chain of low-price stores, has asked Fairmount to supply it with 36,000 backpacks for a special promotion Riverside is planning. Riverside has offered to pay Fairmount a unit price of $53 per pack. The regular selling price is $77. The special order would require some modification to the basic model. These modifications would add $5.70 per unit in material cost, $3.20 per unit in labor cost, and $2.20 in variable overhead cost. Although Fairmount has the capacity to produce the 36,000 units without affecting its regular production of 467,000 units, a one-time rental of special testing equipment to meet Riversides requirements would be needed. The equipment rental would be $73,800 and would allow Fairmount to test up to 67,000 units.
Required:
a. Prepare a schedule to show the impact of filling the Riverside order on Fairmonts profits for the year. (Enter your answers in thousands rounded to 1 decimal place. (i.e., 5,400,400 should be entered as 5,400.4). Select option "higher" or "lower", keeping Status Quo as the base. Select "none" if there is no effect.)
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