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t costs for 3,000 units: 25. Lorraine manufactures a single product with the following full uni Direct materials Direct labor Manufacturing overhead (40% variable) Selling expenses (60% variable) Administrative expenses (10% variable) Total per unit $80 40 120 40 20 $300 A company recently approached Lorraine with a special order to purchase 500 units for $300. rently sells the models to dealers for $550. expenses would be incurred on the special order. Lorraine cur- Capacity is sufficient to produce the extra 1,000 units. No selling Required a. Ignoring the special order, determine Lorraines profit on production and sales of 3,000 units. Ignore tax- b. Should Lorraine accept the special order if its goal is to maximize short-run profits? Determine the impact c. Determine the minimum price Lorraine would want, to increase before tax profits by $80,000 on the spe- d. W es in these analyses. on profit of accepting the order cial order hen making a special order decision, what non-quantitative aspects of the decision should Lorraine consider? (15 points)



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Answer Format is not can be slightly different, Answers are highlighted in yellow: Solution: Explanation (550-300)*3000 Answer: a) 750000 750000 b) Profit will increase by $65,000 Particulars Incremental Sales (500 300) Less: Incremental Cost: Direct Material (500 80) Direct Labor Manufacturing overhead Admin Expense (500)*(20*10%) Incremental Profit Amount 150000 40000 20000 24000 (500 40) (500) (120*40%) 1000 85000 65000 c) 330 Minimum Price (80000+85000)/500- 330 d Answer Options for part d are not available, can be slightly different: d) 1 Effect on Other and existing customer of lower price 2 Compititors response on such lower price 3 Effect on Companys image as quality brand

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