# Question

The Drosselmeier Corporation, located in Munich, makes Christmas nutcrackers and has an annual plant capacity of 2,400 product units. Suppose its predicted operating results (in euros) for the year are as follows:

Production and sales of 2,000 units, total sales . €180,000

Manufacturing costs

Fixed (total) ................ 70,000

Variable (per unit) ................ 25

Selling and administrative expenses

Fixed (total) ............... 30,000

Variable (per unit) ............... 10

Compute the following, ignoring income taxes:

1. If the company accepts a special order for 300 units at a selling price of €40 each, how would the total predicted net income for the year be affected, assuming no effect on regular sales at regular prices?

2. Without decreasing its total net income, what is the lowest unit price for which the Drosselmeier Corporation could sell an additional 100 units not subject to any variable selling and administrative expenses, assuming no effect on regular sales at regular prices?

3. List the numbers given in the problem that are irrelevant (not relevant) in solving number 2.

4. Compute the expected annual net income (with no special orders) if plant capacity can be doubled by adding additional facilities at a cost of €500,000. Assume that these facilities have an estimated life of 4 years with no residual scrap value, and that the current unit selling price can be maintained for all sales. Total sales are expected to equal the new total plant capacity each year. No changes are expected in variable costs per unit or in total fixed costs except for depreciation.

Production and sales of 2,000 units, total sales . €180,000

Manufacturing costs

Fixed (total) ................ 70,000

Variable (per unit) ................ 25

Selling and administrative expenses

Fixed (total) ............... 30,000

Variable (per unit) ............... 10

Compute the following, ignoring income taxes:

1. If the company accepts a special order for 300 units at a selling price of €40 each, how would the total predicted net income for the year be affected, assuming no effect on regular sales at regular prices?

2. Without decreasing its total net income, what is the lowest unit price for which the Drosselmeier Corporation could sell an additional 100 units not subject to any variable selling and administrative expenses, assuming no effect on regular sales at regular prices?

3. List the numbers given in the problem that are irrelevant (not relevant) in solving number 2.

4. Compute the expected annual net income (with no special orders) if plant capacity can be doubled by adding additional facilities at a cost of €500,000. Assume that these facilities have an estimated life of 4 years with no residual scrap value, and that the current unit selling price can be maintained for all sales. Total sales are expected to equal the new total plant capacity each year. No changes are expected in variable costs per unit or in total fixed costs except for depreciation.

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