Question

Mater als Labor 19.50 13.90 6.90 Fiead ถ.whaad ($3,7115. 1 nn per yaar, 4ER.nnn 'mba par yaar 4860 RMersde Discount Mart, a chain ot low-price stores, has asked Faimount to supply It with 38,000 backpacks for a speclal promotion Riverside Is planning. Riverside has omered to pay Falrmount a unit price of 554 per pack The regular selna prce is 579. The specilal order would require some m din ation to the basic modd. Thos mod anons would add S 50 pcr un t in matonal cost $340 porunt n labor cost and $2 40 'n va a c ovo head COS. AlthOlgh Far ou nt has the capac ty to produce 1he 38 000 units thout a ccting its cgular production ơr 469 000 unns a Required: a. Prepare a edu eto shoA the l pact o base. Select "none" if there is no effect) ling te R erslde o deron Falm on s pr ts torthe ear Enter your answers In thousands rounded to 1 decimal place. Le 5,400 400 should be entered as 5 400.4 Select option "higher or ฯ0 er keeping Status Quo as the Status Qu Altemative Difference Les varlablc cost: Materials Vanable overhcad Tulal varisble cus. Cantribution margin Les: Fixad casts b. Da you agrec with the docsion to acreat the special order? O Yes No e. Considering cniy prot detenmine the minimum quantity of backpacks in the special order that would make it prefntable. (Do net round intermediate calculations. units

Answer 1

Part 1

	(All Costs in Thousands of Dollars)
	Status Quo 469,000 Units	Alternative 507,000 Units	Difference
Sales revenue	37051	39103	2052	higher
Less variable costs:
Materials	9333.1	10313.5	980.4	higher
Labor	6519.1	7176.5	657.4	higher
Variable overhead	3236.1	3589.5	353.4	higher
Total variable cost	19088.3	21079.5	1991.2	higher
Contribution margin	17962.7	18023.5	60.8	higher
Less: Fixed costs	3705.1	3773.9	68.8	higher
Operating profit (loss)	14257.6	14249.6	8.0	lower

explanation

	(All Costs in Thousands of Dollars)
	Status Quo 469,000 Units	Alternative 507,000 Units	Difference
Sales revenue	37051 (469*79)	39103 ((469*79)+(38*54))	2052 (37051-39103)	higher
Less variable costs:
Materials	9333.1 (469*19.90)	10313.5 (469*19.90)+(38*(19.90+5.90))	980.4 (9333.1-10313.5)	higher
Labor	6519.1 (469*13.90)	7176.5 (469*13.90)+(38*(13.90+3.40))	657.4 (6519.1-7176.5)	higher
Variable overhead	3236.1 (469*6.90)	3589.5 (469*6.90)+(38*(6.90+2.40))	353.4 (3236.1-3589.5)	higher
Total variable cost	19088.3	21079.5	1991.2	higher
Contribution margin	17962.7	18023.5	60.8	higher
Less: Fixed costs	3705.1	3773.9(3705.1+68.8)	68.8	higher
Operating profit (loss)	14257.6	14249.6	8.0	lower

Part 2

No

No, the special order should not be accepted because the operating profit decreases by $8000

Part 3

The minimum quantity of backpacks

43000

Units

Minimum quantity of backpacks = incremental fixed costs / contribution margin for additional units = 68800/(54-19.90-5.90-13.90-3.40-6.90-2.40)) = 43000 units