Question

Please do all requirements! Requirements and data table listed

Hoover Rouse Sunglasses sell for about $125 per pair. Suppose the company incurs the following average costs per​ pair:

Data Table

	Direct materials	$38
	Direct labor	12
	Variable manufacturing overhead	10
	Variable marketing expenses	3
	Fixed manufacturing overhead	16	*
	Total cost	$79
* $2,300,000 total fixed manufacturing overhead / 143,750 pairs of sunglasses

Rouse has enough idle capacity to accept a​ one-time-only special order from Colorado Glasses for 17,000 pairs of sunglasses at

$67 per pair. Hoover Rouse will not incur any variable marketing expenses for the order.

REQUIREMENTS

1.	How would accepting the order affect Hoover Rouse's operating​ income? In addition to the special​ order's effect on​ profits, what other​ (longer-term qualitative) factors should Hoover Rouse's Managers consider deciding whether to accept the order?
2.	HooverRouse's marketing manager Jum Revo argues against accepting the special order because the offer price of $67 is less than Hoover Rouse's $79 cost to make the sunglasses, Revo asks ou as one of the staff accountants, to explain whether his analysis is correct.

Thank you

Hoover Rouse Sung asses sell for about $125 per pair. Suppose the company incurs the following average costs per pair: (Click the icon to view the cost information.) Hoover Rouse has enough idle capacity to accept a one-time-only special order from Colorado Glasses for 17,000 pairs of sunglasses at $67 per pair. Hoover Rouse will not incur any variable marketing expenses for the order Read the requirements Requirement 1. How would accepting the order affect Hoover Rouse's operating income? In addition to the special order's effect on profits, what other (longer-term qual tative) factors should Hoover Rouse's managers consider in deciding whether to accept the order? Prepare an incremental analysis to detenmine the special order's effect on operating income. (Enter a "0 for any z the special order.) Total Order Data Table Incremental Analysis of Special Sales Order Decision Per Unit 17,000 units) Revanue from special order Less variable expense associated with the order Direct materials Direct labor Variable manufacturing overhead Variable marketing expenses Fixed manufacturing overhead Total cost $2.300,000 total fixed manufacturing overhead 38 12 10 Variable manufacturing costs Contribution margin Less Additional fixed expenses associated with the order Increase (decrease) in operating income from the special order 16. 79 6 Requirements 143,750 pairs of sung asses Print Done 1. How would accepting the order affect Hoaver Rouse's operating income? In addition to the special order's effect on profits, what other (onger-term qualitative) factors should Hoover Rouse's managers consider in deciding whether to accept the order? 2. Hoover Rouse's marketing manager, Jim Revo, argues against accepting the special order because the offer price of $67 is less than Hoover Rouse's $79 cost to make the sunglasses Revo asks you, as one of Hoover Rouse's staff accountants, to explain whether his analysis is correct Clear Al Check Answer

Answer 1

Solution 1)

	Current Situation		Special Order
	Total $ (143,750 Units)	Per Unit	Total $ (17,000 Units)	Per Unit	Total (160,750 Units)
Sales	1,79,68,750.00	125.00	11,39,000.00	67.00	1,91,07,750.00
Variable Costs			-		-
Direct materials	54,62,500.00	38.00	6,46,000.00	38.00	61,08,500.00
Direct labour	17,25,000.00	12.00	2,04,000.00	12.00	19,29,000.00
Variable manufacturing overhead	14,37,500.00	10.00	1,70,000.00	10.00	16,07,500.00
Variable marketing expenses	4,31,250.00	3.00	-	-	4,31,250.00
Total Variable Costs	90,56,250.00	63.00	10,20,000.00	60.00	1,00,76,250.00
Contribution = Sales - Total Variable Cost	89,12,500.00	62.00	1,19,000.00	7.00	90,31,500.00
Fixed Costs			-		-
Fixed Manufacturing Overheads	23,00,000.00	16.00	-	-	23,00,000.00
Profit = Contribution - Fixed Cost	66,12,500.00	46.00	1,19,000.00	7.00	67,31,500.00

It is recommended to the company to accept the order as it increases the Net Profit of the company by $119,000 ($6,731,500 - $6,612,500)

Longer term qualitative factors Rouse’s Manager should consider deciding whether to accept the order:

1. In order to complete the special order, your company must have the ability to perform the task.
2. To avoid disrupting production, you need to have the capacity to fill the special order in terms of personnel and equipment on the production line.
3. If you're operating at full capacity, you'll have to turn away regular customers to accommodate the special order. This can only be justified if the order produces a large enough profit to overcome the disruption.
4. Since a special order is a one-time order, it represents a short-run pricing decision. Use the special order pricing technique to ensure profit – calculate the lowest price of the product or service at which to accept the special order. Even if the price is set below regular price, the sale may still generate a profit above variable costs. When there is idle capacity or when sales are low, you can accept special orders as long as the incremental revenue surpasses incremental costs.

Solution 2) HooverRouse's marketing manager Jum Revo argues against accepting the special order because the offer price of $67 is less than Hoover Rouse's $79 cost to make the sunglasses, Revo asks you as one of the staff accountants, to explain whether his analysis is correct.

While considering the new proposal, the company should only consider the variable costs as with fixed costs already accounted for in regular production. In the special order, the company is earning a contribution of $7 for every unit of special order. Hence, it is recommended to accept the special order.