Question 1: Special order Sales volume in units 110 Revenue Variable costs Contribution margin Fixed costs Profit $11,000 $2,200 $8,800 $1,300 $7,500 Special order: A client wants to buy 20 units at a discounted price of $30 per unit. This is a one-time deal (i.e., a short-term decision). You have enough spare capacity to fulfill this special order without cutting back on your regular sales. a) Use the gross approach to decide whether you should take the special order: status quo (no special order) Revenue $11,000 Variable costs $2,200 Contribution margin $8,800 Fixed costs $1,300 Profit $7,500 total amounts after adding the special order Should you take the special order? Why? O YES -- the profit is positive with the special order O NO -- the low price for the special order reduces the contribution margin O YES -- the profit is higher with the special order b) Use the incremental approach to decide whether you should take the special order. how much each amount changes after adding the special order Incremental revenue Incremental variable costs Incremental contribution margin Incremental fixed costs Incremental profit Should you take the special order? Why? O YES the total profit is positive O NO -- the incremental profit is lower than the original profit O YES the incremental profit is positive