Question

10:26 & D 62 nybusinesscourse.com Business Course Pope Company manufactures a variety of hiking boots and has received a special one-time-only order from a new customer. Pope has sufficient idle capacity to accept the special order to manufacture 1,100 pairs of boots at a price of $51.00 per pair. Pope's normal selling price is $65.00 per pair of sneakers. Variable manufacturing costs are $35.00 per pair and fixed manufacturing costs are $12.00 a pair. Pope's variable selling expense for its normal line of sneakers is $1.00 per pair. What would the effect on Pope's operating income be if the company accepted the special order? Pope's operating income would Support • by $ if the order was accepted. Please answer all parts of the

Please explain what costs you include when deciding to take the special order and How you get whether the business is increasing or decreasing operating income by accepting the order. Thank you

Answer 1

Regardless of whether special order accepted or not Pope company should incur fixed costs. Hence fixed cost is not considered while making the decision of whether to accept special order or not.

The selling price of $65 per sneaker is also not relevant because the special order selling price is $51 is relevant for the decision.

Variable selling expenses of $1 is also not relevant for special order decision. Because this is a special order and not required to sell outside in the normal course of business.

Only variable manufacturing expenses are included in decision making.

Selling price of special order	$          51
Less: Variable cost	$        (35)
Profit per unit	$          16
No. of units	1100
Marginal profit ($16x1100)	$ 17,600

Popes' operating income would INCREASE by $17,600