Question
Mohave Corp. makes several varieties of beach umbrellas and accessories. It has been approached by a company called Lost Mine Industries about producing a special
Mohave Corp. makes several varieties of beach umbrellas and accessories. It has been approached by a company called Lost Mine Industries about producing a special order for a custom umbrella called the Ultimate Shade (US). The special-order umbrellas with the Lost Mine Company logo would be distributed to participants at an upcoming convention sponsored by Lost Mine. |
Lost Mine has offered to buy 3,300 of the US umbrellas at a price of $34 each. Mohave currently has the excess capacity necessary to accept the offer. The following information is related to the production of the US umbrella: |
Direct materials | $ | 14.00 | |
Direct labor | 8.00 | ||
Variable manufacturing overhead | 10.00 | ||
Fixed manufacturing overhead | 2.50 | ||
| | ||
Total cost | $ | 34.50 | |
| | ||
Regular sales price | $ | 42.00 | |
|
Compute the incremental profit (or loss) from accepting the special order.
1. Profit (or loss) _____________ by ______________
2.Should Mohave accept the special order?
Yes? _____
No? ______
3.Suppose that the special order had been to purchase 3,800 umbrellas for $31.00 each. Recompute the incremental profit (or loss) from accepting the special order under this scenario.
Profit (or loss ___________by_______________
4. Assume that Mohave is operating at full capacity. Calculate the special-order price per unit at which Mohave would be indifferent between accepting or rejecting the special order.
Special Order Price _______________ per Unit
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