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Raymond Industries has an annual plant capacity of 70,000 units; current production is 52,000 units per year. At the current production volume, the variable cost
Raymond Industries has an annual plant capacity of 70,000 units; current production is 52,000 units per year. At the current production volume, the variable cost per unit is $35.00 and the fixed cost per unit is $4.60. The normal selling price of Raymond's product is $49.00 per unit. Raymond has been asked by Cornhill Company to fill a special order for 14,000 units of the product at a special sales price of $20.00 per unit. Cornhill is located in a foreign country where Raymond does not currently operate. Cornhill will market the units in its country under its own brand name, so the special order is not expected to have any effect on Raymond's regular sales. Read the requirements. Requirement 1. How would accepting the special order impact Raymond's operating income? Should Raymond accept the special order? Complete the following incremental analysis to determine the impact on Raymond's operating income if it accepts this special order. (Enter a "0" for any zero balances. Use parentheses or a minus sign to indicate a decrease in contribution margin and/or operating income from the special order.) Total Order 1 Requirements Incremental Analysis of Special Sales Order Decision (14,000 units) Revenue from special order Less expenses associated with the order: Variable manufacturing cost Contribution margin 1. How would accepting the special order impact Raymond's operating income? Should Raymond accept the special order? 2. How would your analysis change if the special order sales price were to be $42.00 per unit and Raymond would have to pay an attorney a fee of $12,000 to make sure it is complying with export laws and regulations relating to the special order? Less: Additional fixed expenses associated with the order Increase (decrease) in operating income from the special order Print Print Done Done
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