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Alpine Luggage has a capacity to produce 400,000 suitcases per year. The company is currently producing and selling 320,000 units per year at a selling
Alpine Luggage has a capacity to produce 400,000 suitcases per year. The company is currently producing and selling 320,000 units per year at a selling price of $398 per case. The cost of producing and selling one case follows: $157 Variable manufacturing costs Fixed manufacturing costs 40 Variable selling and administrative costs 82 Fixed selling and administrative costs 21 Total costs $300 The company has received a special order for 20,000 suitcases at a price of $251 per case. It will not have to pay any sales commission on the special order, so the variable selling and administrative costs would be only $50 per suitcase. The special order would have no effect on total fixed costs. The company has rejected the offer based on the following computations: $251 Selling price per case Variable manufacturing costs 157 Fixed manufacturing costs 40 50 Variable selling and administrative costs Fixed selling and administrative costs 21 Net profit (loss) per case $ (17) Required: a. What is the impact on profit for the year if Alpine accepts the special order? (Enter your answers in thousands of dollars. Select option "higher" or "lower", keeping Status Quo as the base. Select "none" if there is no effect.) Book (All revenues and costs in $000) Status Quo Alternative Difference rint 320,000 Units 340,000 Units Sales revenue $ 127,360 $ 132,380 $ 5,020 higher Variable costs: 50,240 53,380 3,140 higher 26,240 27,240 1,000 higher Contribution margin Fixed costs 0 none Operating profit b. Do you agree with the decision to reject the special order? O Yes No Manufacturing Selling and administrative
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