Question

Ch 25-5

Score: 0 of 5 pts (insniduicnini.dio SId oc inn 940 tai0as MH E25-11 (similar to) Question Help Meirose Sunglasses sell for about $153 per pair. Suppose that the company incurs the following average costs per paiE (Cick the icon to view the cost informabion Melrose has enough idle capacity to accepta one-time-only special order from Rolling Shades for 25,000 pairs of sunglasses at 570 per pair Melrose will not incur any vanable seng expenses for the order Read the reauEments Requirement 1. How would accepting the order affect Melrose's operating income? In addition to the special order's effect on profits, what other (longer-term qualitative) factors should Melrose's managers consider in deciding whether to accept the order? Prepare the analysis to determine the effect on operating income (Enter decreases to profits with a parentheses or minus sign) mart Expected increase in revenues sunglasses x Expected increase in expenses Sunglasses x Expected

Answer 1

Since there is spare capacity, no additional fixed costs will be incurred for the purpose of special order

Expected Increase in Revenues 25000 sunglasses*70 = $1,750,000

Expected Increase in Expenses 25,000*(38+9+7) = $1,350,000

Expected Increase in Operating Income = $400,000

Other factors are:

Effect of special order on regular sales

Long term relationship with the party giving special order
Expansion plans

2.His analysis is incorrect as variable selling expenses and fixed costs will not be incurred for the special order

as there is spare capacity, no additional fixed cost will be required