The special order should be accepted after the following analysis of alternatives: Sales revenue Variable cost Contribution Fixed costs. Operating profit Status Quo Alternative (do not accept other) (accept ofer) Diference $800,000 $850,000 $80.000 1400.000) 1435.000 (36.000 $400,000 $124.000 $24.000 240.000 240,000 $160.000 $184,000 $24.009 Alternative approach $60,000 Special order sales (4.000 x $15) Less variable costs Manufacturing (4.000 x 58) Sales commissions (4.000 x 51) Addition to profit $32,000 4000 35,000 $24,000 2. Using the outside supplier at a cost of $38 per unit will decrease profit by 55.000 ($33,000 increase in profit shown below - 538.000 paid to the supplier). Status Quo Alternative (do not accept offer) (accept ofer) Diference Variable cost ignoring payment to supplier) Fored costs Costs $250.000 350.000 $600.000 $242.000* 5 8.000 lower 325.000 25.000 lower $$87.000 83.000 lower *1942.000 (1.000 KS) (4.000 500 *000 = (0.90 x 250.000 dedering the $100.000 acting from 3. Contribution margins per unit: BikeRac Kayak Rac Selling price $100 $80 Variable costs 40 35 Contribution margin per unit 80 $45 Note: Variable costs are materials direct labor, the variable portion of overhead, and variable marketing costs The special order should be accepted after the following analysis of alternatives: Sales revenue Variable cost Contribution Fixed costs. Operating profit Status Quo Alternative (do not accept other) (accept ofer) Diference $800,000 $850,000 $80.000 1400.000) 1435.000 (36.000 $400,000 $124.000 $24.000 240.000 240,000 $160.000 $184,000 $24.009 Alternative approach $60,000 Special order sales (4.000 x $15) Less variable costs Manufacturing (4.000 x 58) Sales commissions (4.000 x 51) Addition to profit $32,000 4000 35,000 $24,000 2. Using the outside supplier at a cost of $38 per unit will decrease profit by 55.000 ($33,000 increase in profit shown below - 538.000 paid to the supplier). Status Quo Alternative (do not accept offer) (accept ofer) Diference Variable cost ignoring payment to supplier) Fored costs Costs $250.000 350.000 $600.000 $242.000* 5 8.000 lower 325.000 25.000 lower $$87.000 83.000 lower *1942.000 (1.000 KS) (4.000 500 *000 = (0.90 x 250.000 dedering the $100.000 acting from 3. Contribution margins per unit: BikeRac Kayak Rac Selling price $100 $80 Variable costs 40 35 Contribution margin per unit 80 $45 Note: Variable costs are materials direct labor, the variable portion of overhead, and variable marketing costs