Swirl Incorporated designs and manufactures fashionable womens clothing. For the coming year, the company has scheduled production
Question:
The management of Swirl is considering a special order from Discount Fashions for an additional 18,000 skirts. These skirts would carry the Discount Fashions label, rather than the Swirl label. In all other respects, they would be identical to the regular Swirl skirts.
Although Swirl regularly sells its skirts to retail stores at a price of $180 each, Discount Fashions has offered to pay only $55 per skirt. However, because no sales commissions would be involved with this special order, Swirl will incur variable selling expenses of only $5 per unit on these sales, rather than the $15 it normally incurs. Accepting the order would cause no change in the companys fixed manufacturing costs or fixed operating costs. Swirl has enough plant capacity to produce 70,000 skirts per year.
Instructions
a. Using incremental revenue and incremental costs, compute the expected effect of accepting this special order on Swirls operating income.
b. Briefly discuss any other factors that you believe Swirls management should consider in deciding whether to accept the special order. Include nonfinancial as well as financialconsiderations.
Step by Step Answer:
Financial and Managerial Accounting the basis for business decisions
ISBN: 978-0078111044
16th edition
Authors: Jan Williams, Susan Haka, Mark Bettner, Joseph Carcello