Question

Alpine Luggage has a capacity to produce 370,000 suitcases per year. The company is currently producing and selling 290,000 units per year at a selling price of $397 per case. The cost of producing and selling one case follows:

Variable manufacturing costs	$	165
Fixed manufacturing costs		41
Variable selling and administrative costs		81
Fixed selling and administrative costs		20
Total costs	$	307

The company has received a special order for 30,000 suitcases at a price of $248 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 $50 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	$	248
Variable manufacturing costs		165
Fixed manufacturing costs		41
Variable selling and administrative costs		50
Fixed selling and administrative costs		20
Net profit (loss) per case	$	(28	)

Required:

1. 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.)

	Status Quo 290,000 units	Alternative 320,000 Unites	Difference	Difference (higher/lower)
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?

Answer 1

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Answer-

Solution Date as CAll costs in $ooo) Status Quo Alternative 290,000 Unit 390,00 Difference Sales revenue 115, 130 122,570_ 7,440 Higher Variable Cost Manufacturing 47,850 52,800 4950 Higher Selling & Administrative 23,490 24,990 1500 Higher Conteibution margin $ 43,790 $990 Higher fined cost U2,690) (17,690) $102 Oporating Puglia 96.100 27,090 990_Highen $44,780 Warking Salas: Al 240,000 units, $397X290,000 = 115,130 Thousand AL 320,000 units, $ 115,130 +($948x30,000) = 122,5 10,000 Variable Mfg. Costs : At 299000, $165x299.000 = $47,850,000 At 320,000 units, $ 165x320,000 = $52,800,000 Variable S&A expus. Az 940,000,$81 x 290,000 - $ 23,490,000 AL 320,000 uni 123499,000 +(50430,000) - $ 24,990,000 Fixed cost for both Cascs = ($41+$20) x 290,000 = $17,690,000 Scanned by TapScanner

Date ...... b) NO, I do not agree with the decision to reject the special order as firm will loss prosit of $990 that is expected from the spre ader Scanned by TapScanner