Question

Opal Kyler Sunglasses sell for about $145 per pair. Suppose the company incurs the following average costs per pair 囲(Click the icon to view the oost information.) Opal Kyler has encugh idle capacity to accept a one-time-only special order from Alaska Glasses for 18,000 pairs of sunglasses at $93 per pair. Opal Kyler will not incur any variable marketing expenses for the order Read the requirements. Requirement 1. How would accepting the order affect Opal Kyler's operating income? In adcition to the special order's effect on profits, what other (longer-term qualitative) factors should Opal Kyler's managers consider in deciding whether to accept the order? Prepare an incremental analysls to detemine the speclal order's effect on operating income. (Enter a " for any zero balances, Use parentheses or a minus sign to indicate a decrease in operating income from the special order.) Total Order Incremental Analysis of Special Sales Order Decision Per Unit (18,000 units Revenue from special order Less variable expense associated with the order Variable manufacturing costs Contribution margin Less: Adcitional fixed expenses associated with the order Increase (decrease) in aperating income from the special order

Answer 1

er unit total order 93 81 variable manufacturing cost per unit of special order revenue from special order less variable overhead costs contribution margin less additional fixed expenses ncrease in operating income 1674000material 1458000labor 60 14 7 81 216000 overheads 0total 216000 long term qualitative factors to consider customer satisfaction - whether special order affects the satisfaction of existing customers? quality of product - does quality of existing production affects? labor - does is passes any negative message among workers? external relation- does ir affects the external relations? 2) the special order of 18000 units can be fullfilled with existing spare capacity hence there will no additional fixed manufacturing overheads. the cost of $105 per unit includes fixed ,manufacturing cost of $20 per unit, which is irrelevant for assesing the special order incrimental expenses will be only variable costs of product. hence cost 105 is irrelevant relevant cost is $ 81 per unit which is variable cost and is less than the special order price per unit