Question

saved Chapter 04 Pre-built Assignment Fairmount Travel Gear produces backpacks and sells them to vendors who sell them under their own label. The cost of one of its backpacks follows $19.80 13.80 6.80 Materials Labor Variable overhead Fixed overhead ($3,658,480 per year; 468,000 units per year) Total 7.80 $48.20 Riverside Discount Mart, a chain of low price stores, has asked Fairmount to supply it with 37.000 backpacks for a special promotion Riverside is planning. Riverside has offered to pay Fairmount a unit price of $54 per pack. The regular selling price is $78. The special order would require some modification to the basic model. These modifications would add $5.80 per unit in material cost, $3.30 per unit in labor cost, and $230 in variable overhead cost. Although Fairmount has the capacity to produce the 37000 units without affecting its regular production of 468.000 units, a one-time rental of special testing equipment to meet Riverside's requirements would be needed. The equipment rental would be $92,400 and would allow Fairmount to test up to 68,000 units References Required: a. Prepare a schedule to show the impact of filing the Riverside order on Fairmont's profits for the year b. Do you agree with the decision to accept the special order? c. Considering only profil, determine the minimum quantity of backpacks in the special order that would make it profitable. Complete this question by entering your answers in the tabs below. Required A Required B Required

Answer 1

Prepare a schedule to show impact of filling the riverside order on fair monts profit for the year

	Unit price	468000	Alternative unit price	37000 units	505000 (468000+37000)unit price	Difference
Sales revenue	$78	$3,65,04,000	$54	$19,98,000	$3,85,02,000	$19,98,000	Higher
Less: Variable costs
Materials	$19.80	$92,66,400	$25.60	$9,47,200	$1,02,13,600	$9,47,200	Higher
Labor	$13.80	$64,58,400	$17.10	$6,32,700	$70,91,100	$6,32,700	Higher
Variable overhead	$6.80	$31,82,400	$9.10	$3,36,700	$35,19,100	$3,36,700	Higher
Total variable cost	$37.60	$1,75,96,800	$51.80	$19,16,600	$1,95,13,400	$19,16,600	Higher
Contribution	$40.40	$1,89,07,200	$2.20	$81,400	$1,89,88,600	$81,400	Higher
Less: Fixed cost	$7.80	$36,50,400			$37,42,800	$92,400	Higher
Operating profit (loss)		$1,52,56,800			$1,52,45,800	($11,000)	Lower

                                                                                     

D

Do                                    Do you agree with the decision to accept the special order?

                                                                    NO

                                          Considering only profits, determine the minimum quantity of backpacks in the special order make it profitable

contribution margin of additional units : $2.20

Fixed cost will be : $92400

Break even point : Fixed cost / Contribution margin

$92400/$2.20 = 42000 units

C

C

D