Caron Manufacturing has the capacity to produce 20,000 units per year. Its predicted operations for the...

 

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Caron Manufacturing has the capacity to produce 20,000 units per year. Its predicted operations for the year are as follows: Sales (15,000 units @ $50 each) $750,000 $20 per unit $50,000 Manufacturing costs: Variable Fixed Marketing and administrative costs: Variable Fixed The accounting department has prepared the following projected income statement for the coming year for your use in making decisions. Sales Variable costs: Manufacturing ($20 x 15,000) Marketing ($4 x 15,000) Contribution margin $4 per unit $30,000 Fixed costs: Manufacturing Marketing Operating profit $300,000 60,000 $50,000 30,000 $750,000 360,000 $390,000 80,000 $310,000 Required: a) Should the company accept a special order for 4,000 units at a selling price of $30? 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 there was a one-time setup fee of $25,000 for the preceding order. Should the special order be accepted? Why? c) What other factors should be considered and how would they impact your decision to accept the special order? Caron Manufacturing has the capacity to produce 20,000 units per year. Its predicted operations for the year are as follows: Sales (15,000 units @ $50 each) $750,000 $20 per unit $50,000 Manufacturing costs: Variable Fixed Marketing and administrative costs: Variable Fixed The accounting department has prepared the following projected income statement for the coming year for your use in making decisions. Sales Variable costs: Manufacturing ($20 x 15,000) Marketing ($4 x 15,000) Contribution margin $4 per unit $30,000 Fixed costs: Manufacturing Marketing Operating profit $300,000 60,000 $50,000 30,000 $750,000 360,000 $390,000 80,000 $310,000 Required: a) Should the company accept a special order for 4,000 units at a selling price of $30? 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 there was a one-time setup fee of $25,000 for the preceding order. Should the special order be accepted? Why? c) What other factors should be considered and how would they impact your decision to accept the special order?

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