Sherene Nill manages a company that produces wedding gowns. She produces both a custom product that is made to order and a standard product that is sold in bridal salons. Her accountant prepared the following forecasted income statement for March, which is a busy month Number of dresses Sales revenue Materials tabor Machine depreciation Hent Heat and light Other production costs Marketing and adeinistration Total costs Operating profit Custom Standard Dresses Dresses Total 10 20 30 550.000 $34.000 $68,000 $10.000 53,800 $19,600 20,000 9.000 30.000 650 1.060 3.60 3.600 1,200 300 2.000 3,600 8.500 573), 960 $14,040 Ms. Nill already has orders for the 10 custom dresses reflected in the March forecasted income statement. The depreciation charges are for machines used in the respective product lines. Machines depreciate at the rate of S1 per hour based on hours used, so these are variable costs. In March, cutting and sewing machines are expected to operate for 1060 hours, of which 680 hours will be used to make custom dresses. The rent is for the building space, which has been leased for several years at $8.600 per month The rent, heat and light are allocated to the product lines based on the amount of floor space occupied. A valued customer who is a wedding consultant, has asked Ms. Nill for a special favor. This customer has a client who wants to get married in early April. Ms. Nil's company is working at capacity and would have to give up some other business to make this dress She can't renege on custom orders already agreed to, but she can reduce the number of standard dresses produced in March to 10 Ms. Nill would lose permanently the opportunity to make up the lost production of standard dresses because she has no unused capacity for the foreseeable future. The customer is willing to pay $28,000 for the special order. Materials and labor for the order will cost $6800 and $10,800, respectively. The special order would require 172 hours of machine time Ms. Nils company would save 190 hours of machine time from the standard dress business given up Rent, heat and light, and other production costs would not be affected by the special order Required: 0-1. Calculate the differential operating profit (loss) 6-2 From an operating profit (loss) perspective for March, should Ms. Nill accept the order? b. What is the minimum price Ms. Nii should accept to take the special order? Without Special Order With Special Order Impact Revenue Materials Labor Machine depreciation Contribution margin Rent Heat and light Other production costs Marketing and administration Operating profit (loss)
