Question
Feinan Sports, Inc., manufactures sporting equipment, including weight-lifting gloves. A national sporting goods chain recently submitted a special order for 4,500 pairs of weight-lifting gloves.
Feinan Sports, Inc., manufactures sporting equipment, including weight-lifting gloves. A national sporting goods chain recently submitted a special order for 4,500 pairs of weight-lifting gloves. Feinan Sports was not operating at capacity and could use the extra business. Unfortunately, the orders offering price of $14 per pair was far below the regular price of $25 and even below the cost of production One marketing manager opposed to taking a loss on the deal. However the personnel manager argued in favor of accepting the order even though a loss would be incurred: it would avoid the problem of lay-offs and would help maintain the community image of the company. The full cost to produce and sell a regular pair of weight lifting gloves is presented below
Direct materials | 7.50 |
Direct labor | 3.70 |
Variable overhead | 1.80 |
Fixed overhead | 3.10 |
Variable selling+Adm. | 2.00 |
Total: 18.10
No variable selling or administrative expense would be associated with the special order required.
1) Assume the the company has ample excess capacity to accept the order. Calculate the change in profit if the order is accepted. Should the company accept or reject the order? Provide supporting computations
2) Suppose that Feinan has excess capacity for only 3,000 pairs of gloves. To accept this order, it would have to give up part of the regular sales. What would be the minimum price Feinan would charge to accept the order? Provide supporting computations
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