Question

Alpine Luagage has a capacity to producc 430,000 sultcases per year. The company is currentty producing and sclling 350,000 units per yaar at a scling price of $400 per case. The cost of producina and sellng one case tollows: arlabla manufacturing csts Ficed manufacturing costa ible seling and administrative costs Fbead saling and adminstrattva costs 156 42 84 S 304 The company has received a special order for 40,000 sutcases at a price of S249 per case lt wil not have to pay any sales commission on the special order, so the variable seling and administrative cos's would be only S5O per suitcase. The special order would have no effect on total fixed costs. The company has rejected the offer based on the following computations: Seling price per ca88 S 249 Fbead manufacturing casta Varisble seling and adminisrtive costs Ficed seling and administrative costs 156 50 (21) Nct proft css) per case Required: a. What is the impact on pront for the ycar It Alpine acccpts the spocial 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 efect) (All costs in $000) Status Quo Altenative Variable ccsts Seling and cminietrae Contrbuton margn Fixed coct Operating proft b. Do you agree wth the decision to reject the speciall order?

Answer 1

a)
Particulars			Status quo 350000 unit	Alternative 390000 unit	Difference
Sale revenue			141750000	151710000	9960000	Higher
Variable cost
Manufacturing			54600000	60840000	6240000	Higher
selling & adminstrative			29400000	31400000	2000000	Higher
Total variable cost			84000000	92240000	8240000	Higher
Contribution margin			57750000	59470000	1720000	Higher
Fixed cost			22400000	22400000	0	Higher
Operating profit			35350000	37070000	1720000	Higher
EXPLANATION
Sale revenue			350000*405	(350000*405)+40000*249
Manufacturing v.c			350000*156	(350000+40000)*156
selling & adm			350000*84	350000*84+40000*50
fixed cost			350000*(42+22)	390000*(42+22)
b) No