Question

Alpine Luggage has a capacity to produce 440,000 suitcases per year. The company is currently producing and selling 360,000 units per year at a selling price of $399 per case. The cost of producing and selling one case follows:

Variable manufacturing costs	$	162
Fixed manufacturing costs		40
Variable selling and administrative costs		79
Fixed selling and administrative costs		20
Total costs	$	301

The company has received a special order for 30,000 suitcases at a price of $248 per case. It will not have to pay any sales commission on the special order, so the variable selling and administrative costs would be only $49 per suitcase. The special order would have no effect on total fixed costs. The company has rejected the offer based on the following computations:

Selling price per case	$	248
Variable manufacturing costs		162
Fixed manufacturing costs		40
Variable selling and administrative costs		49
Fixed selling and administrative costs		20
Net profit (loss) per case	$	(23	)

Required:

a. What is the impact on profit for the year if Alpine accepts the special order? (Enter your answers in thousands of dollars. Select option "higher" or "lower", keeping Status Quo as the base. Select "none" if there is no effect.)

Sales revenue status quo alternative difference (higher, lower, none)

Variable Costs:

Manufacturing ? ? ?   

Selling and Admin

Contribution Margin

Fixed Costs

Operating Profit

Answer 1

Particulars	Status Quo (Existing without special order) (000'$)	Alternative (With special order) (000'$)	Difference (000'$)	Higher/Lower/None
Sales revenue	1,43,640	1,51,080	7	Higher
Variable Costs :	-	-	0
Manufacturing	58,320	63,180	5	Higher
Selling and Admin	28,440	29,910	1	Higher
Contribution Margin	56,880	57,990	1,110	Higher
Fixed Costs	21,600	21,600	-	None	(Fixed costs will remain same irrespective of the level of production)
Operating Profit	35,280	36,390	1,110	Higher
Hence as we can observe from the above income margin statement, if the company had accepted the special order, its profit would have increased by 1,110 thousand dollars.
	1000