The Question:

Look at your answer to problem 4. Assuming your net income for the special order is negative, give a reason why the company may still want to accept the order. Assuming your answer is positive, give a reason why the company may still want to reject the order.

Garcia Company has the following information available: Units Sold Current Selling Price Current Variable Cost Per Unit Fixed Costs 25,000 $15.00 $9.00 $160,000 A new customer has offered to purchase an additional 5,000 units but wants to pay only $12.00 per unit. The variable cost will be reduced by $1.00 per unit due to no commissions being paid on this order. The special order will take an additional cost of $3,000 in special packaging and delivery costs. Required Prepare an income statement using the current information Prepare an income statement on the special order Current 25,000 x 15 = 375,000 Special Order 5,000 x 12 = 60,000 Sales Variable Costs 25,000 x 9 = 225,000 5,000 x 8 = 40,000 Contribution Margin 375,000-225,000 = 150,000 160,000 60,000- 40,000 = 20,000 3,000 Fixed Costs Net Income 17,000 150,000 - 160,000 = -10,000