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Foster White Sunglasses sell for about $154 per pair. Suppose the company incurs the following average costs per​ pair:

Foster White has enough idle capacity to accept a​ one-time-only special order from Alaska Glasses for 16,000 pairs of sunglasses a $68 per pair. Foster White will not incur any variable marketing expenses for the order.Read the requirements

Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$41
	Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
	Variable manufacturing overhead . . . . . . . . . . . . . . . . . . . . . . . .	10
	Variable marketing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
	Fixed manufacturing overhead . . . . . . . . . . . . . . . . . . . . . . . . . .	16	*
	Total cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$83

.

Requirement 1. How would accepting the order affect

Foster White's operating​ income? In addition to the special​ order's effect on​ profits, what other​ (longer-term qualitative) factors should Foster White's managers consider in deciding whether to accept the​ order? Prepare an incremental analysis to determine the special​ order's effect on operating income. ​(Enter a​ "0" for any zero balances. Use parentheses or a minus sign to indicate a decrease in operating income from the special​ order.)

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		Total Order
Incremental Analysis of Special Sales Order Decision	Per Unit	(16,000 units)
Revenue from special order
Less variable expense associated with the order:
Variable manufacturing costs
Contribution margin
Less: Additional fixed expenses associated with the order
Increase (decrease) in operating income from the special order

In addition to determining the special​ order's effect on operating​ profits,White​'s managers also should consider the​ following:

A.

How will Foster White​'s competitors​ react? Will they retaliate by cutting their prices and starting a price​ war?

B.

Will Foster White​'s other customers find out about the lower sale price Foster White offered to Alaska Glasses​? If​ so, will these other customers demand lower sale​ prices?

C.

Will lowering the sale price tarnish Foster White​'s image as a​ high-quality brand?

D.

All of the above

E.

None of the above

Requirement 2.

Foster White's marketing​ manager,Jim RevoJim Revo​, argues against accepting the special order because the offer price of $68 is less than Foster White's $83 cost to make the sunglasses.

RevoRevo

asks​ you, as one of Foster White's staff​ accountants, to explain whether his analysis is correct.When deciding whether to accept a special​ order, we should compare the extra revenues we will receive against the

▼

extra costs we will incur to fill the order. total costs of making the sunglasses. Costs that we will incur whether or not we fill the order are

▼

irrelevant

relevant

to our decision. This is why comparing the

$68 price Alaska Glasses offered us with our $83 total cost of making and selling the sunglasses is

Answer 1

Requirement 1. How would accepting the order affect Foster White's operating​ income? In addition to the special​ order's effect on​ profits, what other​ (longer-term qualitative) factors should Foster White's managers consider in deciding whether to accept the​ order? Prepare an incremental analysis to determine the special​ order's effect on operating income. ​(Enter a​ "0" for any zero balances. Use parentheses or a minus sign to indicate a decrease in operating income from the special​ order.)
		Total Order
Incremental Analysis of Special Sales Order Decision	Per Unit	(16,000 units)
Revenue from special order	$       68.00	$ 1,088,000.00
Less variable expense associated with the order:
Variable manufacturing costs	$10	$    160,000.00
Contribution margin	$       58.00	$    928,000.00
Less: Additional fixed expenses associated with the order	0	0
Increase (decrease) in operating income from the special order	$       58.00	$    928,000.00
In addition to determining the special​ order's effect on operating​ profits,White​'s managers also should consider the​ following:
A.How will Foster White​'s competitors​ react? Will they retaliate by cutting their prices and starting a price​ war?
B.Will Foster White​'s other customers find out about the lower sale price Foster White offered to Alaska Glasses​? If​ so, will these other customers demand lower sale​ prices?
C. Will lowering the sale price tarnish Foster White​'s image as a​ high-quality brand?
D.All of the above	Correct
E. None of the above
Requirement 2.
Foster White's marketing​ manager,Jim RevoJim Revo​, argues against accepting the special order because the offer price of $68 is less than Foster White's $83 cost to make the sunglasses.
RevoRevo asks​ you, as one of Foster White's staff​ accountants, to explain whether his analysis is correct.
When deciding whether to accept a special order, we should compare the extra revenues we will receive against the extra costs we will incur to fill the order. Costs that we will incur whether or not we fill the order are irrelevant to our decision. This is why comparing the $68 price Alaska Adventures offered us with our $83 total costof making the sunglasses is incorrect