A.BRK Company, which Manufactures bags, has a Capacity of 130,000 bags per month. Currently its operating capacity is 100,000 units. The company receives a special order of 20,000 bags at $9 a bag. A Predicted Income 

Statement for the year without this special order follows:

 

Per Unit

Total

Sales Revenue

$12.50

$1,250,000

Manufacturing Costs:

Variable

$ 6.25

$ 625,000

Fixed

$ 1.75

$ 175,000

Total Man. Costs

$ 8.00

$ 800,000

Gross Profit

$ 4.50

$ 450,000

Selling & admin. Costs:

Variable

$ 1.80

$ 180,000

Fixed

$ 1.45

$ 145,000

Total Selling & admin Costs

$ 3.25

$ 325.000

Operating Profit

$ 1.25

$ 125,000

If the order is accepted, all fixed costs are not affected.

Required:

1. Should the special order be accepted?
2. At what selling price per unit from the customer would the company be economically indifferent between accepting and rejecting the order?
3. What price per unit should be charged on the special order to increase operating profit by $9,000?

Answer rating: 100% (QA)

Should BRK Company Accept the Special Order Analysis Capacity Availability The company has a capacit... View the full answer