tin a) 7 marks in total Calculation of the incremental revenue and the incremental costs of the additional 1,800 units: Incremental revenue 219,600.00 (1 mark) Incremental DM costs 83,000.00 (1 mark) Incremental DL costs 112,500.00 (1 mark) Incremental batch manuf. costs 2,016.00 (1 mark) Total incremental cost 197,516.00 Net incremental revenue from accepting the order 22,084.00 (1 mark) Alice Engineering should accept the one-time-only special order if it has no long-term implications because accepting the order increases Alice Engineering net incremental revenue by $22, 034 (1 mark). If, however, accepting the special order would cause the regular customers to be dissatised or to demand lower prices, then Alice Engineering will have to trade off the $22, 084 gain from accepting the special order against the operating prot it might lose from regular customers (1 mark). h) 6 marks in total Focus on the incremental effectsthe benets of accepting the special order of 1,800 units versus the costs of selling 1,000 fewer units to regular customers. Incremental revenue from the 1,800 unit special order equals $22,084 (Part a). The loss in operating prot from selling 1,000 fewer units to regular customers equals: Loss revenue - 134,000.00 (1 mark) Savings in direct materials costs 46,111.11 (1 mark) savings in DL costs 62,500.00 (1 mark) Savings in bat. cost 1,120.00 (1 mark) Total loss - 24,268.89 (1 mark) Accepting the special order will result in a loss of $2,184.89 ($22,084 $24,268.89). The special order should, therefore, be rejected (1 mark). Questions Alice Engineering manufactures small engines. The engines are sold to manufacturers who install them in such products as lawn mowers. Its manufacturing plant has the capacity to produce 9000 engines each month. Current production and sales capacity is 80 per cent. The normal selling price of an engine is $134. Alice engineering has just received a special one- time only order for 1800 engines at $122 per engine. Alice Engineering makes engines for its existing customers in batch sizes of 100 engines (72 batches x 100 engines per batch = 7200 engines]. The special order requires Alice engineering to make the engines in 18 batches of 100 each. Cost information for current activity level is as follows: Variable costs that vary with number of units produced -Direct materials $332,000 -Direct labour 450,000 Variable costs that vary with number of batches 72 batches x $112 per hatch 8,0 64 Fixed costs - Fixed manufacturing costs 45 6,000 Fixed marketing costs 225,125 Total costs $1,471,189 Required: a] Should Alice Engineering accept this special order? Show calculations to support your answer. [7 marks] b] Suppose plant capacity was only 8000 engines instead of 9000 engines each month. The special order must either be taken in full or be rejected completely. Should Alice Engineering accept the special order? Show calculations to support your answer. [6 marks] 0] Assume that monthly capacity is 9000 engines and Alice Engineering is planning to accept the special order. However, Alice Engineering is concerned that if it accepts the special order, its existing customers will immediately demand a price discount of $4 in the month in which the special order is being lled. Should Alice Engineering accept the special order under these conditions? Show calculations to support your answer. [4 marks] c) 4 marks in total Incremental revenue from accepting the special order 22,084.00 (1 mark) Loss from existing customers 28,800.00 (1 mark) Net loss if the order is accepted - 6,716.00 (1 mark) Alice Engineering should not accept the special order (1 mark)