Question

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E8-4A. Special Order Carson Manufacturing, Inc., sells a single product for $36 per unit. At an operating level of 8,000 units, variable costs are $18 per unit and fixed costs $10 per unit. Carson has been offered a price of $20 per unit on a special order of 2,000 units by Big Mart Dis- count Stores, which would use its own brand name on the item. If Carson accepts the order, materials cost will be $3 less per unit than for regular production. However, special stamping equipment costing $4,000 would be needed to process the order; the equipment would then be discarded. Assuming that volume remains within the relevant range, prepare an analysis of differential reschi and costs to determine whether Carson should accept the special order.

Answer 1

The answer has been presented in the supporting sheet. All the parts has been solved with detailed explanation and calculation. For detailed answer refer to the supporting sheet.

Answer Statement of Differential Revenue and Cost Without Special Order 288000 With Special order 328000 Differential Effect on income 40000 Particular Revenue Less Cost Variable cost Fixed additional equipment 30000 144000 80000 174000 80000 4000 e 4000 1 Net Operating income 64000 70000 6000 Yes the special order should be accepted, as it leads to increase in net income