PA7-8 (Algo) Analyzing Special-Order Decision [LO 7-2, 7-3]

Camino Company manufactures designer to-go coffee cups. Each line of coffee cups is endorsed by a high-profile celebrity and designed with special elements selected by the celebrity. During the most recent year, Camino Company had the following operating results while operating at 75 percent (60,000 units) of its capacity: Sales revenue Cost of goods sold Gross profit Operating expenses Net operating income $ 840,000 322,500 $ 517,500 15,000 $502,500 Camino's cost of goods sold and operating expenses are 80 percent variable and 20 percent fixed. Camino has received an offer from a professional wrestling association to design a coffee cup endorsed by its biggest star and produ ,000 cups for $8 each (total $128,000). These cups would be sold at wrestling matches throughout the United States. Acceptance of the order would require a $48,000 endorsement fee to the wrestling star, but no other increases in fixed operating expenses. Required: 1. Complete the incremental analysis of the special order in the table provided below. 2. Should Camino accept this special order? 3. If Camino were operating at full capacity, what price would Camino require for the special order? Per cup Total Incremental Revenue Less: Incremental Costs Variable COGS Variable Operating Expenses Endorsement Fee Incremental Profit Required 1 Required 2 Required 3 Should Camino accept this special order? Yes ONO Required 1 Required 2 Required 3 If Camino were operating at full capacity, what price would Camino require for the special order? Price per Cup