Question

Data Table Direct materials Direct labor Variable manufacturing overhead Variable selling expenses Fixed manufacturing overhead Total cost $2,150,000 Total fixed manufacturing overhead / 86,000 Pairs of sunglasses 37 25. 84 Print Done

Answer 1

Req 1)
Expected increase in revenues	24000 * 74=	1776000
Less:Expected increase in expenses	24000 * 59=	1416000
Expected increase in operating income		360000
Longer-term qualitative factors:
A : Will lowering the sale price tarnish Super-Ban's image as a high-quality brand?Affect image
B : Will Super-Ban's other customers find out about the lower sale price Super-Ban offered
to Montana Shades? If so, will these other customers demand lower sale prices. Ask for price reduction.
Req 2)
When deciding whether to accept a special order, we should compare the Fixed Costs
that we will incur whether or not we fill the order are affecting to our decision.
This is why comparing the $74 price Montana Shades offered us with out $84 total cost
of making the sunglasses is less(at $59).
The additional revenues and the additional costs that we will incur to fill the special
order are important if we accept the Montana Shades special order, we will incur only
$59 of additional cost per pair, which is less than the $74 per pair that Montana Shades
offered. Therefore, we should accept the special order to increase the company's
operating income.