Question

All required table included. please enlarge to view.

Data Table - X $ Direct materials 50 Direct labour 11 Variable manufacturing overhead. 10 Variable marketing expenses 4 Fixed manufacturing overhead $ 95 Total cost $2,700,000 total fixed manufacturing overhead / 135,000 pairs of sunglasses 4 20 GA Print Done

Answer 1

Solution:

1700000 StenBack Incremental Analysis of Special Sales Order Expected Increase in Revenue Expected increase in Expenses Variable Manufacturing Cost 1420000 Fixed Manufacturing Cost Total Expected increase in expenses Expected increase in income 0 1420000 280000

In addition to determining the special order's effect on operating profits Stenback's managers also should conside • Will Stenback's other customers find out about the lower sale price Challenger accepted from Alaska Adventure • How will Stenback's competitors react? Will they retaliate by cutting their prices and starting a price war? • Will lowering the sale price tarnish Stenback's s image as a high-quality brand 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 $85 price LA Glasses offered us with our $95 total cost of making the sunglasses is misleading. Specifically, we have enough capacity to produce the 20,000 extra pairs of sunglasses fo LA Glasses' special order without increasing our fixed costs. Our fixed costs will be the same whether or not we accept the order, so these costs are irrelevant. Also, as you know, we will not incur any variable marketing costs on the special order. The variable marketing costs will be the same whether or not we make the additional 20,000 pairs of sunglasses for East Coast Glasses, so these costs are also irrelevant

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