Jaime Company is currently producing 16,000 units per month, which is 80% of its production capacity. Variable
Question:
A special order received from a foreign company would enable Jaime Company to operate at 100% capacity. The foreign company offered to pay 75% of Jaime’s current selling price per unit. If the order is accepted, Jaime will have to spend an extra $2.00 per unit to package the product for overseas shipping. Also, Jaime Company would need to lease a new stamping machine to imprint the foreign company’s logo on the product, at a monthly cost of $2,500. The special order would require a sales commission of $3,500.
Instructions
(a) Compute the number of units involved in the special order and the foreign company’s offered price per unit.
(b) What is the manufacturing cost of producing one unit of Jaime’s product for regular customers?
(c) Prepare an incremental analysis of the special order. Should management accept the order?
(d) What is the lowest price that Jaime could accept for the special order to earn net income of $1.20 per unit?
(e) What nonfinancial factors should management consider in making its decision?
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Related Book For
Accounting Principles
ISBN: 978-0470534793
10th Edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
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