Question
Hvala Sail Makers manufactures masts for sailboats. The company has the capacity to produce 40,000 masts per year and is currently producing and selling 30,000
Hvala Sail Makers manufactures masts for sailboats. The company has the capacity to produce 40,000 masts per year and is currently producing and selling 30,000 masts per year. The following information relates to current production:
Regular Selling Price | $200 |
Variable Costs: | |
Manufacturing | $40 |
Selling & Administrative | $20 |
Fixed Costs: | |
Manufacturing | $300,000 |
Selling & Administrative | $200,000 |
The National Regatta Team has requested Hvala to make 6,000 masts for a special price of $150 per mast. This special order requires both variable manufacturing and reduced variable selling and administrative costs. The variable selling and administrative expenses will be $17 per unit as the team will pick the masts up saving Hvala shipping costs.
This order will require a special lathe that will not be used after this order and will have no resale value upon completion of this order. The cost of the lathe is $400,000. (Expensive, right? Who knew.....)
No other fixed costs will be affected and it will not affect the company's regular sales in the long run because it is a one-time transaction.
If Hvala accepts this special order, net income will [ Select ] ["increase", "decrease"] by $ [ Select ] ["$458,000", "$900,000", "some amount other than those shown", "$58,000", "$342,000", "$558,000", "$158,000"] .
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