Loft Lake Cabinets is approached by Ms. Jenny Zhang, a new customer, to fulfill a large one-time-only special order of 200 units at $190 each for a product similar to one offered to regular customers. LoftLake's production capacity is 2,000 units. The followingper unit dataapply for sales toregularcustomers:

Direct materials$50.00

Direct labor65

Variable manufacturing support25.00

Fixed manufacturing support30

Variable marketing cost10.00

Fixed marketing cost15

Total costs180.00 per unit

Selling price$280.00 per unit

Ms. Zhang wants the cabinets in cherry rather than oak, so direct material costs will increase by $15 per unit. Special order will not incur variable marketing cost.

1. If Loft Lake Cabinets currently sells 1,800 units to regular customers, how much is Loft Lake's change in operating income if the special order is accepted?

2. If Loft Lake Cabinets currently sells 2,000 units to regular customers. For Loft Lake Cabinets, what is the minimum acceptable selling price of this one-time-only special order?

Answer rating: 100% (QA)

To solve this problem we need to calculate the contribution margin for the regular customers and the special order then determine the impact on Loft L... View the full answer