Question

Andreasen Corporation manufactures thermostats for office buildings. The following is the cost of each unit: Materials Variable overhead Fired overhead (51,058.400 per year, 108,000 units per year) Total $32.20 Simpson Company has approached Andreason with an offer to buy 6.000 thermostats at a price of $38 each. The regular price is $58. Andreasen has the capacity to produce the 6.000 additional units without afecting current production of 100,000 units Empon requires that each unit use branding, which requires a more expensive label resubing in an actional $1.50 per un material cost. The labor cost of afong the label will be the same as for the current models. The Simpson order will require a one-mo rental of packaging equipment for $54.400 Required: a. Prepare a schedule to show the impact of filing the Simpson order on Andreason's profits for the year (Enter your answers in thousan 5.400.4). Select option "higher" or "lower", keeping Status Quo as the base Select "none" if there is no effect) (All Costs in Thousands of Dollars) Status Quo 114.000 UN Difference 50 .20000 04820000 Operating profits) b. Do you agree with the decision to accept the special order? No Yes

Answer 1

Answer to a :
	(All costs in Thousands of Dollars)
	Status Quo - 108,000 units	Alternative - 114,000 units	Difference
Sales revenue	62,64,000	64,92,000	2,28,000	4%
Less : variable costs :
Materials	20,30,400	21,54,000	1,23,600	6%
Labour	8,42,400	8,89,200	46,800	6%
Variable overhead	3,02,400	3,19,200	16,800	6%
Total variable cost	31,75,200	33,62,400	1,87,200	6%
Contribution Margin	30,88,800	31,29,600	40,800	1%
Less : Fixed Costs			-
Normal Fixed Costs	10,58,400	10,58,400	54,400	5%
Avoidable Fixed Costs		54,400
Operating Profit/Loss	20,30,400	20,16,800	-13,600	-1%
Answer to b :
No, I do not agree with the decision to accept the special order since it results in a decrease in the operating income by 13,600 $ due to the additional fixed cost of 54,400 which we have to incur for the special order.