Question
The Rainier Company provides landscaping services to corporations and businesses. All its landscaping work requires Rainier to use landscaping equipment. Its landscaping equipment has the
The Rainier Company provides landscaping services to corporations and businesses. All its landscaping work requires Rainier to use landscaping equipment. Its landscaping equipment has the capacity to do 10,000 hours of landscaping work. It is currently utilizing 9,000 hours of equipment time. Rainier charges $80 per hour for landscaping work. Cost information for the current activity level is as follows:
Rainier has just received a one-time only special order for landscaping work from Lasell Corporation at $60 per hour that would require 1,000 hours of equipment time. Should Rainier accept the offer even though revenue per hour is less than Rainiers landscaping cost of $62 per hour [($450,000 + $108,000) , 9,000 hours)]? No marketing costs will be necessary for the one-time only special order.
$720,000 450,000 Revenues ($80 x 9,000 hours) Variable landscaping costs (including materials and labor), which vary with the number of hours worked ($50 per hour x 9,000 hours) Fixed landscaping costs Variable marketing costs (5% of revenues) Fixed marketing costs Total costs Operating income 108,000 36,000 72,000 666,000 $ 54,000Step by Step Solution
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