Jansen Crafters has the capacity to produce 50,000 oak shelves per year and is currently selling 44,000 shelves for $32 each. The unit variable cost is $27, which includes $1.50 per-shelf for packaging.

Cutrate Furniture has approached Jansen about buying 1,200 shelves for bookcases it is building and is willing to pay $30 for each shelf.

Annual fixed costs are $320,000. The fixed costs will be unaffected by the special order and the company has the capacity to accept the order.

Q3. (This question doesn't have to do with the one-time offer.) You can reduce fixed costs by $25,000 by reducing marketing and other costs, but that will reduce sales by 10%. What would be the gain from this decision?Answer 1

Choose...

$5,400

$1,800

$3,600

$3,000

Yes

$6,600

$4,800

$5,000

No

Q1. What is the profit from accepting this offer?

Answer 2

Choose...

$5,400

$1,800

$3,600

$3,000

Yes

$6,600

$4,800

$5,000

No

Q4. Is the standard price of $32 relevant (in the case of Q1 and Q2)?

Answer 3

Choose...

$5,400

$1,800

$3,600

$3,000

Yes

$6,600

$4,800

$5,000

No

Q2. Now, assume that special packaging will be required to deliver internationally. Although the usual packaging is $1.50 per shelf, the special packaging for this order will cost $3.00 per shelf.

Choose...

$5,400

$1,800

$3,600

$3,000

Yes

$6,600

$4,800

$5,000

No