Question

Camino Company manufactures designer to-go coffee cups. Each line of coffee cups is endorsed by a high-profile celebrity and designed with special elements selected by the celebrity. During the most recent year, Camino Company had the following operating results while operating at 85 percent (102,000 units) of its capacity: Sales revenue $1,632,000 599,250 Cost of goods sold Gross profit Operating expenses Net operating income $1,032,750 51,000 981,750 Camino's cost of goods sold and operating expenses are 80 percent variable and 20 percent fixed. Camino has recelved an offer from a professional wrestling association to design a coffee cup endorsed by its biggest star and produce 16,000 cups for $9 each (total $144,000). These cups would be sold at wrestling matches throughout the United States. Acceptance of the order would require a $32,000 endorsement fee to the wrestling star, but no other increases in fixed operating expenses. Required: 1. Complete the incremental analysis of the special order in the table provided below 2. Should Camino accept this special order? 3. If Camino were operating at full capacity, what price would Camino require for the special order? Complete this question by entering your answers in the tabs below. Required 2 Required 1 Required 3 Complete the incremental analysis of the special order in the table provided below. (Enter per unit answers to 2 decimal places.) Per cup Total Incremental Revenue Less: Incremental Costs Variable COGS Variable Operating Expenses Endorsement Fee Incremental Profit

Answer 1

Incremental analysis
		per cup	total
incremental revenue		9	144000
less: incremental costs
variable cost of goods sold		4.7	75200
variable operating expenses		0.4	6400
endorsement fee		2	32000
incremental profit			30400
working
variable cost of goods sold = 599250*80%/102000unit = 4.7
variable operating expenses = 51000*80%/102000 units = 0.40
endorsement fee = 32000/16000 = 2
2 ) yes accept the special order there is the profit of 30400
3) price require for special order
variable cost (16000*5.10)		81600
contribution lost 16000*(16-5.10)		174400
cost- endorsement fees		32000
total cost		288000
price required = 288000/16000		18

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