Sylvan Root Sunglasses sell for about $150 per pair. Suppose the company incurs the following average costs per pair (Click the icon to view the cost information.) Sylvan Root has enough idle capacity to accept a one-time-only special order from Colorado Glasses for 21,000 pairs of sunglasses at $71 per pair. Sylvan Root will not incur any variable marketing expenses for the order. Read the requirements Requirement 1. How would accepting the order affect Sylvan Root's operating income? In addition to the special order's effect on profits, what other longer-term qualitative) factors should Sylvan Root'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 "0" for any zero balances. Use parentheses or a minus sign to indicate a decrease in operating income from the special order.) Total Order Per Unit (21,000 units) Incremental Analysis of Special Sales Order Decision Revenue from special order Less variable expense associated with the order: Variable manufacturing costs Contribution margin Less: Additional fixed 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, Root's managers also should consider the following O A. Will lowering the sale price tarnish Sylvan Root's image as a high-quality brand? OB. Will Sylvan Root's other customers find out about the lower sale price Sylvan Root offered to Colorado Glasses? If so, will these other customers demand lower sale prices? O C. How will Sylvan Root's competitors react? Will they retaliate by cutting their prices and starting a price war? OD. All of the above O E. None of the above Requirement 2. Sylvan Root's marketing manager, Jim Revo, argues against accepting the special order because the offer price of $71 is less than Sylvan Root's 579 cost to make the sunglasses. Revo asks you, as one of Sylvan Root'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 V to our decision. This is why comparing the $71 price Colorado Glasses offered us with our $79 total cost of making and selling the sunglasses is Requirements x 1. How would accepting the order affect Sylvan Root's operating income? In addition to the special order's effect on profits, what other (longer-term qualitative) factors should Sylvan Root's managers consider in deciding whether to accept the order? 2. Sylvan Root's marketing manager, Jim Revo, argues against accepting the special order because the offer price of $71 is less than Sylvan Root's $79 cost to make the sunglasses. Revo asks you, as one of Sylvan Root's staff accountants, to explain whether his analysis is correct. Direct materials. .$ 39 Direct labor.... 12 Variable manufacturing overhead.. 6 Variable marketing expenses 2 Fixed manufacturing overhead 20* $ 79 Total cost * $2,100,000 total fixed manufacturing overhead : 105,000 pairs of sunglasses
