Question

Rutkey Collectibles is a small toy company that manufactures and sells metal replicas of classic cars. Each car sells for $2.75 The cost of each unit follows: Materials Labor Variable overhead Fixed overhead ($14,175 per month, 18,900 units per month) Total costs per unit $1.00 0.20 0.30 0.75 $2.25 One of Rutkey's regular customers asked the company to fill a special order of 900 units at a selling price of $2.00 per unit. Rutkey's can fill the order using existing capacity without affecting total fixed costs for the month. However, Rutkey's manager was concerned about selling at a price below the $2.25 cost per unit and has asked for your advice. Required: a. Prepare a schedule to show the impact of providing the special order of 900 units on Rutkey's profits in addition to the regular production and sales of 18,900 units per month. b. Based solely on the data given, what is the lowest price per unit at which the model cars could be sold for the special order without reducing Rutkey's profits? c. If Rutkey Collectibles company was operating at capacity, what would happen to operating profit if the special order was accepted? Complete this question by entering your answers in the tabs below. Required A Required B Required C Prepare a schedule to show the impact of providing the special order of 900 units on Rutkey's profits in addition to the regular production and sales of 18,900 units per month. (Select option "higher" or "lower", keeping Status Quo as the base. Select "none" if there is no effect.) Status Quo 18,900 Cars Alternative 19,800 Cars Difference Sales revenue Less variable costs: Materials Labor Variable overhead Total variable cost Contribution margin Less: Fixed costs Onerating nrofit $ 0 $ 0

Answer 1

Status Quo 18900 Cars $ 51,975 $ Alternative 19800 cars 53,775 Difference 1,800 Higher $ Sales Revenue Variable cost Materials Labor Variable Overhead Total Variable Cost Contribution Margin Fixed Cost Operating Profit 18,900 3,780 5,670 28,350 23,625 14,175 9,450 $ $ $ $ $ $ $ 19,800 $ 3,960 $ 5,940 $ 29,700 $ 24,075 $ 14,175 $ 9,900 $ 900 Higher 180 Higher 270 Higher 1,350 Higher 450 Higher - none 450 Higher Less Working Sales Revenue Materials | 18900 x 2.75 18900 x 1.00 18900 x 0.20 18900 x 0.30 (18900 x 2.75) + (900 x 2.00) 19800 x 1.00 19800 x 0.20 19800 x 0.30 Labor Variable Overhead Sales revenue of 18900 will be 2.75 and extra sales of 900 units will be at 2.00. Fixed cost remain same as extra sales will not affect fixed cost. b. If all variable costs are covered than profit will not reduce profit, as all fixed cost will remain same within capacity. Materials Labor Variable Overhead Total Variable Cost per unit 1.00 0.20 0.30 1.50 Lowest Price per car is $ 1.50. c. If company is operating at its full capacity than operating profit will decrease. After full capacity fixed cost will increase so operating cost will decrease if specal order is accepted.