Question

The Belik Company has the capacity to produce 5,000 units per year. Its predicted operations for the year are as follows:
Sales (4,000 units @ $ 20 each) ......... $ 80,000
Manufacturing costs:
Variable ............................................. $ 5 per unit
Fixed ................................................. $ 10,000
Marketing and administrative costs:
Variable .............................................$ 1 per unit
Fixed ................................................ $ 8,000

The accounting department has prepared the following projected income statement for the coming year for your use in making decisions:


Required
A. Should the company accept a special order for 500 units at a selling price of $8? Assuming that there are no variable marketing and administrative costs for this order and that regular sales will not be affected, what is the impact of this decision on company profits?
B. Suppose that the preceding order has a onetime setup fee of $1,000. Should the special order be accepted? Why or why not?
C. What other factors should be considered, and how would they impact your decision to accept the special order?
D. Disregarding questions A through C, suppose that regular sales would be reduced by 200 units if the special order were accepted. What impact would this have on the company’sdecision?


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  • CreatedMarch 11, 2015
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