Sylvan Mcknight Sunglasses sel for about $150 per pair. Suppose the company incurs the following average costs per pair (Click the icon to view the cost information.) Sylvan Mcknight has enough idle capacity to accept a one-time-only special order from Montana Glasses for 22,000 pairs of sunglasses at $81 per pair Sylvan McKnight will not incur any variable marketing expenses for the order Read the recrements Requirement 1. How would accepting the order affect Sylvan McKnight's operating income? In addition to the special order's effect on profits, what other (longer-term qualitative) factors should Sylvan Mcknight's managers consider in deciding whether to accept the order? Prepare an incremental analysis to determine the special order's effect on operating income. (Enter a "O" for any zero balances. Use parentheses or a minus sign to indicate a decrease in operating income from the special order.) Total Order Incremental Analysis of Special Sales Order Decision Per Unit 22,000 units) Revenue from special order Less variable expense associated with the order Variable manufacturing costs Contribution margin Less: Additional fixed expenses associated with the order Less Additional fred expenses associated with the order Increase (decrease in operating income from the special order In addition to determining the special order's effect on operating profits. Mcknighe's managers also should consider the following O A. Wil Sylvan Mcknight's other customers find out about the lower le price Sylvan McKnige offered to Montana Glasses? If so, will these other customers demand lower sale prices? OB. How will Sylvan Mcknight's competitors react? Will they retaliate by cutting their prices and starting a price war? O C. Wil lowering the sale price tarnish Sylvan Mcknight's image as a high quality brand? OD. Al the above OE None of the above Requirement 2. Sylvan McKnight's marketing manager, Jim Revo, argues against accepting the special order because the offer price of $81 is less than Sylvan McKnight's $91 cost to make the sunglasses. Revo asks you, as one of Sylvan Mcknight's staff accountants, to explain whether his analysis is correct When deciding whether to accept a special order, we should compare the extra revenues we will receive against the Costs that we will incur whether or not we fill the order are to our decision. This is why comparing the $81 price Montana Glasses offered us with our $91 total cost of making and selling the sunglasses A Requirements 1. How would accepting the order affect Sylvan Mcknight's operating income? In addition to the special order's effect on profits, what other (longer-term qualitative) factors should Sylvan McKnight's managers consider in deciding whether to accept the order? 2. Sylvan Mcknight's marketing manager, Jim Revo, argues against accepting the special order because the offer price of $81 is less than Sylvan Mcknight's $91 cost to make the sunglasses. Revo asks you, as one of Sylvan Mcknight's staff accountants, to explain whether his analysis is correct. Data Table Direct materials.. Direct labor ..... Variable manufacturing overhead . Variable marketing expenses. ... Fixed manufacturing overhead 25 Total.cost... * $2,200,000 total fixed manufacturing overhead / 88,000 pairs of sunglasses
