Nardin Outfitters has the capacity to produce 12,000 of its special arctic tents per year. The company is currently producing and selling 5,000 tents per year at a selling price of $900 per tent. The cost of producing and selling one tent follows:

The company has received a special order for 500 tents at a price of $600 per tent from Chipman Outdoor Center. It will not have to pay any sales commission on the special order, so the variable selling and administrative costs would be only $45 per tent. The special order would have no effect on total fixed costs. The company has rejected the offer based on the following computations:

Required

a. What is the impact on profit for the year if Nardin Outfitters accepts the special order? Show computations.

b. Do you agree with the decision to reject the special order? Explain. 

Transcribed Image Text:

Variable manufacturing costs Fixed manufacturing costs...... Variable selling and administrative costs Fixed selling and administrative costs... Total costs... $440 90 80 50 $660