Homework Answers
Fixed costs are irrelevant for decision making here as they remain same even when the order is accepted or rejected.
Therefore relevant manufacturing cost = 18.30 - 2.70 = 15.60
Increase(Decrease) in operating profits
= (Special order price - Relevant manufacturing costs)*Special order units
= (17.50 - 15.60)*5,000
= $9,500 increase
B. If Morris is operating at full capacity, change in operating profits
= (Special order price - Wholesale price) * Special order units
= (17.50 - 18.50)*5,000
= -$5,000 decrease
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