Question

Alpine Luggage has a capacity to produce 430,000 suitcases per year. The company is currently producing and selling 350,000 units per year at a selling price of $397 per case. The cost of producing and selling one case follows: $161 40 Variable manufacturing costs Fixed manufacturing costs Variable selling and administrative costs Fixed selling and administrative costs Total costs 21 $306 The company has received a special order for 40,000 suitcases at a price of $249 per case. It will not have to pay any sales commission on the special order, so the variable selling and administrative costs would be only $48 per suitcase. The special order would have no effect on total fixed costs. The company has rejected the offer based on the following computations: $249 161 40 Selling price per case Variable manufacturing costs Fixed manufacturing costs Variable selling and administrative costs Fixed selling and administrative costs Net profit (loss) per case 48 21 Required: a. What is the impact on profit for the year if Alpine accepts the special order? (Enter your answers in thousands of dollars. Select option "higher" or "lower", keeping Status Quo as the base. Select "none" if there is no effect.) (All revenues and costs in 9000) Status Quo Alternative 350,000 Units 390,000 Units Difference 4.980,000 higher $ 139,850,000 $1,448,300,000 Sales revenue Variable costs: Manufacturing Seling and administrative Contribution margin Fixed costs Operating profit

Answer 1

(All revenues and cost in $000) Status Quo 350000 Units Alternative 390000 units 138,950 $ 148,910 Difference 9,960 Higher $ Sales Revenue Variable cost Manufacturing Selling and administrative Contribution Margin Fixed Cost Operating Profit 56,350 29,400 53,200 21,350 31,850 $ $ $ $ $ 62,790 31,320 54,800 21,350 33,450 $ $ $ $ $ 6,440 Higher 1,920 Higher 1,600 Higher none 1,600 Higher Working Sales Revenue Manufacturing Selling and administrative Fixed Cost (350000 x 397)/1000 (350000 x 397) + (40000 x 249)/1000 (350000 x 161) /1000 (390000 x 161)/1000 (350000 x 84) /1000 (350000 x 84) + (40000 x 48)/1000 (40+21) X 350000/1000 Sales revenue for 350000 units will be at $ 397 per unit & for 40000 units it is $ 249 per unit Selling exp for 350000 units is $ 84 & for extra 40000 units it is $48 Fixed cost remain same as extra sales will not affect fixed cost. Divide number by 1000 to get answer in thousand of dollars.