Question

Rutkey Collectibles is a small toy company that manufactures and sells metal replicas of classic cars. Each car sells for $2.80 The cost of each unit follows: $0.99 0.60 8.30 Materials Labor Variable overhead Fixed overhead ($14,850 per month, 19,800 units per month) Total costs per unit 0.75 $2.55 One of Rutkey's regular customers asked the company to fill a special order of 700 units at a selling price of $2.05 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 $2.55 cost per unit and has asked for your advice. Required: a. Prepare a schedule to show the Impact of providing the special order of 700 units on Rutkey's profits in addition to the regular production and sales of 19,800 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 Prepare a schedule to show the impact of providing the special order of 700 units on Rutkey's profits in addition to the regular production and sales of 19,800 units per month. (Select option higher" or "lower, keeping Status Quo as the base. Select none if there is no effect. Status Quo 19.800 Cars Alternative 20,500 Cars Difference Thigher Sales revenue Less variable costs: Materials Labor Variable overhead Total variable cost Contribution margin Less: Fixed costs Operating profit. . higher Thigher higher higher higher $ Oinone Thigher............

Answer 1

1.

Particulars	status quo	alternative	difference
Sales revenue	$55440	$56835	$1395 increase
Less variable costs
Material	($17820)	($18450)	$630 increase
Labor	($11880)	($12300)	$420 increase
Variable overhead	($5940)	($6150)	$210 increase
Total variable cost	($35640)	($36900)	$1260 increase
Contribution margin	$19800	$19935	$135 increase
Less fixed cost	($14850)	($14850)	nil
Operating profit	$4950	$5085	$135 increase

Sales in alternative = existing + new

= $55400 + (700*$2.05)

= $56835

All other will be on same rate as before.

B) since there is additional capacity even if he was able to collect variable cost then there will be no loss of profit.

So minimum rate = variable rates

= $0.9 + $0.60 + $0.30

= $1.80

C) if company was operating at capacity then contribution lost will be Relevant.

Lost contribution = additional units * (existing rate - new rate)

= 700*(2.80 - 1.80)

= $7000

So if order was accepted there will be decrease in profit of $7000.

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