Challenger inflatable kayaks sell for \(\$ 65\) per kayak. The average cost for an inflatable kayak is \(\$ 42\), as follows:

Challenger has enough idle capacity to accept a one-time-only special order from Alaska Adventures for 100 kayaks at $40 per kayak. Challenger will not incur any additional variable marketing expenses for the order.

Requirements

1. How would accepting the order affect Challenger's operating income? In addition to the special order's effect on profits, what other (longer-term, qualitative) factors should Challenger's managers consider in deciding whether to accept the order?

2. Challenger's marketing manager, Eva Winan, argues against accepting the special order because the offer price of \(\$ 40\) is less than Challenger's \(\$ 42\) cost to make the kayaks. Explain whether her analysis is correct. 

Transcribed Image Text:

Direct materials Direct labor Variable manufacturing overhead Variable marketing expenses Fixed manufacturing overhead Total costs $20 6 4 2 10 $42