Question
Industries has an annual plant capacity of 66,000 units; current production is 57,000 units per year. At the current production volume, the variable cost per
Industries has an annual plant capacity of
66,000
units; current production is
57,000
units per year. At the current production volume, the variable cost per unit is
$32.00
and the fixed cost per unit is
$4.50.
The normal selling price of
Luxe's
product is
$44.00
per unit.
Luxe
has been asked by
Bramwall
Company to fill a special order for
5,000
units of the product at a special sales price of
$28.00
per unit.
Bramwall
is located in a foreign country where
Luxe
does not currently operate.
Bramwall
will market the units in its country under its own brand name, so the special order is not expected to have any effect on
Luxe's
regular sales. Read the requirements
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.
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Part 1
Requirement 1. How would accepting the special order impact
Luxe's
operating income? Should
Luxe
accept the special order?Complete the following incremental analysis to determine the impact on
Luxe's
operating income if it accepts this special order. (Enter a "0" for any zero balances. Use parentheses or a minus sign to indicate a decrease in contribution margin and/or operating income from the special order.)
Incremental Analysis of Special Sales Order Decision | Total Order (5,000 units) |
---|---|
Revenue from special order |
|
Less expenses associated with the order: | |
Less: Variable manufacturing cost |
|
Contribution margin |
|
Less: Additional fixed expenses associated with the order |
|
Increase (decrease) in operating income from the special order |
|
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