Question

Check PA7-8 (Algo) Analyzing Special-Order Decision (LO 7-2,7-3) Camino Company manufactures designer to-go coffee cups. Each line of coffee cups is endorsed by a high-profile celebrity and designed with special elements selected by the celebrity. During the most recent year, Camino Company had the following operating results while operating at 75 percent 197,500 units) of its capacity: Sales revenue Coat of goods sold $1.560.000 560, 625 Operating expenses Net operatim incono 48,750 050,625 Camino's cost of goods sold and operating expenses are RO percent variable and 20 percem fixed, Camino has received an offer from a professional wrestling association to design a coffee cup endorsed by its biggest star and produce 25,000 cups for $10 each (total $250,000). These cups would be sold at wrestling matches throughout the United States. Acceptance of the order would require a $75,000 endorsement fee to the wrestling star, but no other increases in fixed operating expenses. Required: 1. Complete the incremental analysis of the special order in the table provided below 2. Should Camino accept this special order? 3. Camino were operating at full capacity, what price would Camino require for the special order? Complete this question by entering your answers in the tabs below.

Answer 1

Total 250,000 Per cup Incremental revenue 10.00 Less: Incremental costs Variable COGS 5.750 Variable operating expenses 0.40 Endorsement fee 13.00 incremental Profit 0.85 143,750 10,000 75,000 21,250 Variable COGS per cup = 560,625/97,500 = 5.75 per cup variable Operating expense = 48,750 x 80% = 39,000 variable Operating expense per cup = 39,000/97,500 = 0.40 per cup 2 Yes, Since the order gives additional revenue, the order can be accepted