Question

Mchave Corp, rakes several varielies of beach umbrellas and accesscries. It has been approached by a company called Lcst Mine Industries about producing a special order for a custom umbrella called the Uimate Shade (US). The special-order umbrelas wih the Lost Mine Company logo would be distributed to participants at an upcoming convention sponsored by Lost Mno Lest Mne has atfered to buy 2,100 of the LUS umbrellas at a price ot 517 each Mchave currently has the xcess caparty necessary I accepl the oler. Te lalkwing irfe stion is telaled b the prodcion the US umbrella Diret materials 5 8.00 Direct labor Variable manufacturing overhead Flnad manutacturing warhaad 4.00 4.00 $10 50 . Suppoco that tho special ordor had boon to purchaso 2,600 umbrellas for $15.00 onch. Racompuro the Incramoensal profit (or losa) from accepting the special arder under this scenario Tolal cust Regular sales pric Required: 1. Compute the Incremental proft for loss) from accepting the special order (or L by by 4. Ascume that Mohave is opcrating at full capacity Celculate the spocial order price per unit at which Mohave would be ndfferent between accepting or rejecting the special order 2. Should Mchave accept the special arder? Prica per Unit Na 3·Suppose t'aT The special order had been 10 purchase 2.500 umbre las 1or $15 00 eacn Recompute the incr memal profit [or ssi from accepting the special order under this scenand by

Answer 1

1
	Per unit	Total 2100 units
Incremental revenue	17	35700
Incremental costs:
Direct materials	8	16800
Direct labor	4	8400
Variable manufacturing overhead	4	8400
Total Incremental costs		33600
Incremental net operating income(loss)		2100
Profit(or loss) increases by $2100
2
Yes, accept the special order
3
	Per unit	Total 2600 units
Incremental revenue	15	39000
Incremental costs:
Direct materials	8	20800
Direct labor	4	10400
Variable manufacturing overhead	4	10400
Total Incremental costs		41600
Incremental net operating income(loss)		-2600
Profit(or loss) decreases by $2600
4
Special order price	25	per unit