Question

Rutkey Collectibles is a small toy company that manufactures and sells metal replicas of classic cars. Each car sells for $3.40 The cost of each unit follows:

Materials	$	1.00
Labor		0.40
Variable overhead		0.50
Fixed overhead ($18,200 per month, 18,200 units per month)		1.00
Total costs per unit	$	2.90

One of Rutkey's regular customers asked the company to fill a special order of 300 units at a selling price of $2.40 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 $2.90 cost per unit and has asked for your advice.

Required:

a. Prepare a schedule to show the impact of providing the special order of 300 units on Rutkey's profits in addition to the regular production and sales of 18,200 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?

Prepare a schedule to show the impact of providing the special order of 300 units on Rutkey's profits in addition to the regular production and sales of 18,200 units per month. (Select option "higher" or "lower", keeping Status Quo as the base. Select "none" if there is no effect.)

	Status Quo 18,200 Cars Alternative 18,500 Cars Difference Sales revenue Less variable costs: Materials Labor Variable overhead Total variable cost Contribution margin Less: Fixed costs Operating profit

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? (Enter your answer to 2 decimal places.)

	Lowest price per car

If Rutkey Collectibles company was operating at capacity, what would happen to operating profit if the special order was accepted?

Increas / Decrease / No change

Answer 1

Part-a: Schedule showing Ipact of Special Order
	Status Quo 18200 cars	Alternative 18500 cars	Difference
Sales Revenue	$61,880.00	$62,600.00	$1,075.00	Higher
	(18200*3.40)	(18200*3.40)+300*2.40
Less Variable Costs:
Materials @ $1	$18,200.00	$18,500.00	$500.00	Higher
Labor @0.40	$7,280.00	$7,280.00	$300.00	Higher
Variable Overhead @0.50	$9,100.00	$9,250.00	$150.00	Higher
Total Variable Cost	$34,580.00	$35,030.00	$950.00	Higher
Contribution Margin	$27,300.00	$27,570.00	$125.00	Higher
Less: Fixed Costs	$18,200.00	$18,200.00	$0.00	None
Operating Profit	$9,100.00	$9,370.00	$125.00	Higher

b. Computation of Lowest Price per Car
Material Cost	1
Labour Cost	0.4
Varioable Overhead Cost	0.5
Lowest Price per Car	1.9

c. The opeating profit would decrease