1. What is the expected level of profit?
2. Should the company accept a special order for 1,000 units at a
selling price of ₹ 1,000 if variable marketing expenses associated
with the special order are ₹ 100 per unit? What will be the
incremental profit if the order is accepted?
3. Suppose that the company received a special order for 3,000
units at a selling price of ₹ 450, with no variable marketing
expenses. What would be the impact on profit?
4. Assume that if the special order were accepted, all the regular
customers would be aware of the price paid for the special order.
Would that influence your decision? Why?
Homework Answers
1. Calculation of expected level of profit:
| Particulars | Amount |
| Sales | 2,50,00,000 |
| Less: Variable cost | |
| Manuufacturing cost (500*20000) | 1,00,00,000 |
| Marketing and administration cost (250*20000) | 50,00,000 |
| less: Fixed cost | |
| Manufacturing cost | 90,00,000 |
| Marketing and administration cost | 10,00,000 |
| Expected Profit | 0 |
2. Calculation of incremental profit from special order
| Particulars | Amount |
| Sales (1000*1000) | 10,00,000 |
| Less: Variable cost | |
| Manuufacturing cost (500*1000) | 5,00,000 |
| Marketing and administration cost (100*1000) | 1,00,000 |
| Additional profit | 4,00,000 |
Cixed cost are ignored because it will not change with additional production. It is sunk cost and will not affect the decision.
3. Calculation of incremental profit from special order
| Particulars | Amount |
| Sales (3000*450) | 13,50,000 |
| Less: Variable cost | |
| Manuufacturing cost (500*3000) | 15,00,000 |
| Additional profit/ (loss) | (1,50,000) |
This order will result in loss of 150,000
4. If all the customers will be aware of low price charged for the special order then they might ask for low prices but at same time the marketing expense will be same. Hence, this will result to loss instead of profit. So, my decision will be changed and i will not accept the special order.
Add Answer to:
1. What is the expected level of profit?
2. Should the company accept a special order...
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Direct labour
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Variable manufacturing overhead
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Direct labour
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Variable manufacturing overhead
$1.00
Fixed manufacturing overhead
$9.00
Variable selling and administrative expenses
$3.00
Fixed selling and administrative expenses
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1.) What is total profit expected to be?
2.) What will be the impact on profit if Kimble drops sofas?
3.) What will be the impact on profit if Kimble drops chairs,
but is able to shift the facilities to making more sofas so that
volume of sofas increases to 7,000 units? (total fixed costs remain
constant).
4.) Variable cost per sofa includes $60 for parts that the
company now buys outside. The company could make the parts at a...
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1.) What is total profit expected to be?
2.) What will be the impact on profit if Kimble drops sofas?
3.) What will be the impact on profit if Kimble drops chairs,
but is able to shift the facilities to making more sofas so that
volume of sofas increases to 7,000 units? (total fixed costs remain
constant).
4.) Variable cost per sofa includes $60 for parts that the
company now buys outside. The company could make the parts at a...
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