Question

Alpine Luggage has a capacity to produce 380,000 suitcases per year. The company is currently producing and selling 300,000 units per year at a selling price of $403 per case. The cost of producing and selling one case follows:

Variable manufacturing costs	$	156
Fixed manufacturing costs		41
Variable selling and administrative costs		80
Fixed selling and administrative costs		20
Total costs	$	297

The company has received a special order for 40,000 suitcases at a price of $251 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 $52 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	$	251
Variable manufacturing costs		156
Fixed manufacturing costs		41
Variable selling and administrative costs		52
Fixed selling and administrative costs		20
Net profit (loss) per case	$	(18	)

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.)

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.) (All revenues and costs in $000) Status Quo Alternative 300,000 Units 340,000 Units Difference Sales revenue Variable costs: Manufacturing Selling and administrative Contribution margin Fixed costs Operating profit b. Do you agree with the decision to reject the special order? Yes NO

Answer 1

		(All revenues & costs in $000)
		status Quo 300000 units	alternative 340000 units	Difference
sales revenue		120900	130940	10040	higher
variable costs:
manufacturing		46800	53040	6240	higher
selling & administrative		24000	27200	3200	higher
contribution margin		50100	50700	600	higher
Fixed costs		18300	18300	0	none
Operating profit		31800	32400	600	higher
Fixed cost = (41+20)*300000 =18300
b) No