Parkland Sunglasses sell for about $155 per pair. Suppose that the company incurs the following average costs per pair: (Click the icon to view the cost information.) Parkland has enough idle capacity to accept a one-time-only special order from Nevada Shades for 17,000 pairs of sunglasses at $76 per pair. Parkland will not incur any variable selling expenses for the order. Read the requirements. Requirement 1. How would accepting the order affect Parkland's operating income? In addition to the special order's effect on profits, what other (longer-term qualitative) factors should Parkland's managers consider in deciding whether to accept the order? Prepare the analysis to determine the effect on operating income. (Enter decreases to profits with a parentheses or minus sign.) Expected increase in revenues sunglasses x Expected increase in expenses sunglasses x Expected in operating income In addition to the special order's effect on profits, what other (longer-term qualitative) factors should Parkland's managers consider in deciding whether to accept the order? O A. O B. O c. How will Parkland's competitors react? Will they retaliate by cutting their prices and starting a price war? Will lowering the sale price tarnish Parkland's image as a high-quality brand? Will Parkland's other customers find out about the lower sale price Parkland offered to Nevada Shades? If so, will these other customers demand lower sale prices? All of the above O D. E. None of the above Requirement 2. Parkland's marketing manager, Peter Kyler, argues against accepting the special order because the offer price of $76 is less than Parkland's $85 cost to make the sunglasses. Kyler asks you, as one of Parkland's staff accountants, to explain whether his analysis is correct. What would you say? When deciding whether to accept a special order, we should compare the Costs that we will incur whether or not we fill to our decision. This is why comparing the $76 price Nevada Shades offered us with our $85 total cost of the order are making the sunglasses is The additional revenues and the additional costs that we will incur to fill the special order are the Nevada Shades special order, we will incur only Sof additional cost per pair, which isthan the $76 per pair that Nevada Shades offered. Therefore, we shodthe special order to operating income. If we accept the company's Data Table Direct materials Direct labor Variable manufacturing overhead Variable selling expenses Fixed manufacturing overhead Total cost $1,950,000 Total fixed manufacturing overhead/78,000 Pairs of sunglasses 36 16 25 85
