Question

Alpine Luggage has a capacity to produce 390,000 suitcases per year. The company is currently producing and selling 310,000 units per year at a selling price of $404 per case. The cost of producing and selling one case follows: Variable manufacturing costs Fixed manufacturing costs Variable selling and administrative costs Fixed selling and administrative costs Total costs $ 156 41 84 20 $ 301 The company has received a special order for 30,000 suitcases at a price of $249 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 $49 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 Variable manufacturing costs Fixed manufacturing costs Variable selling and administrative costs Fixed selling and administrative costs Net profit (loss) per case $ 249 156 41 49 20 $ (17) 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 S000) Status Quo Alternative 310,000 Units 340,000 Units Difference Sales revenue Variable costs Manufacturing Selling and administrative Contribution margin Fixed costs Operating profit

Answer 1

Solution :

	Status Quo 310,000 Units (In '000)	Alternative 340,000 Units (In '000)	Difference (In '000)
Sales Revenue	$ 125,240	$ 132,710	$ 7,470	Higher
Variable Costs :
Manufacturing	$ 48,360	$ 53,040	$ 4,680	Higher
Selling and Administration	$ 26,040	$ 27,510	$ 1,470	Higher
Contribution Margin	$ 50,840	$ 52,160	$ 1,320	Higher
Fixed Cost	$ 18,910	$ 18,910	-	None
Operating Profit	$ 31,930	$ 33,250	$ 1,320	Higher

Please enter Cost Figure in Negative if table does not accept positive figure.

Working :

	Status Quo 310,000 Units (In '000)	Alternative 340,000 Units (In '000)
Sales Revenue	310,000 * $ 404 = $ 125,240	(310,000 * $ 404) + (30,000 * 249) = $ 132,710
Variable Costs :
Manufacturing	310,000 * $ 156 = $ 48,360	340,000 * $ 156 = $ 53,040
Selling and Administration	310,000 * $ 84 = $ 26,040	(310,000 * $ 84) + (30,000 * $ 49) = $ 27,510
Contribution Margin	$ 50,840	$ 52,160
Fixed Cost	$ 310,000 * ($ 41 + $ 20) = $ 18,910	$ 18,910
Operating Profit	$ 31,930	$ 33,250

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