Question

Camino Company manufactures designer to-go coffee cups. Each line of coffee cups is endorsed by a high-profile celebrity and designed with special elements selected by the celebrity. During the most recent year, Camino Company had the following operating results while operating at 80 percent (96,000 units) of its capacity:
Sales revenue ........ $960,000
Cost of goods sold ...... 492,000
Gross profit ....... $468,000
Operating expenses .... 36,000
Net operating income .... $432,000

Camino’s cost of goods sold and operating expenses are 80 percent variable and 20 percent fixed. Camino has received an offer from a professional wrestling association to design a coffee cup endorsed by its biggest star and produce 20,000 cups for $8 each (total $160,000). These cups would be sold at wrestling matches throughout the United States. Acceptance of the order would require a $60,000 endorsement fee to the wrestling star, but no other increases in fixed operating expenses.

Required:
1. Prepare an incremental analysis of the special order.
2. Should Camino accept this special order?
3. If Camino were operating at full capacity, would your answer in requirement 2 change? If so, what price would Camino require for the special order?



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  • CreatedFebruary 27, 2015
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