Question

Check my work Andreasen Corporation manufactures thermostats for office buildings. The following is the cost of each unit. 20 points Materials Labor Variable overhead Fixed overhead ($1,962,000 per year; 109,000 units per year) Total $36.00 14.00 4.00 18.00 $72.00 eBook Print References Simpson Company has approached Andreasen with an offer to buy 9,300 thermostats at a price of $60 each. The regular price is $100. Andreasen has the capacity to produce the 9,300 additional units without affecting its current production of 109,000 units. Simpson requires that each unit use its branding, which requires a more expensive label, resulting in an additional $2.00 per unit material cost. The labor cost of affixing the label will be the same as for the current models. The Simpson order will also require a one- time rental of packaging equipment for $34,400. Required: a. Prepare a schedule to show the impact of filling the Simpson order on Andreasen's profits for the year. b. Do you agree with the decision to accept the special order? c. Considering only profit, determine the minimum quantity of thermostats in the special order that would make it profitable, assuming capacity is available. Complete this question by entering your answers in the tabs below.
I've been stuck on this problem and can't figure it out.

Answer 1

Since there is spare capacity, only incremental costs are relevant for the special order as there will be no loss of regular sales
Schedule	Status Quo	Alternative	Difference
Revenue from special order	10,900.00	11,458.00	558.00	Higher
Variable Costs:
Material	3,924.00	4,277.40	353.40	Higher
Labor	1,526.00	1,656.20	130.20	Higher
Variable Overhead	436.00	473.20	37.20	Higher
Total Variable cost	5,886.00	6,406.80	520.80	Higher
Contribution Margin	5,014.00	5,051.20	37.20	Higher
Less: Fixed costs	1,962.00	1,996.40	34.40	Higher
Operating Profit	3,052.00	3,054.80	2.80	Higher
Yes, the order should be accepted since incremental profit
c.Minimum quantity = Increase in fixed costs/Contribution margin per unit
=34400/(60-38-14-4)
i.e. 8600	units