King Inc. manufactures sweaters which it sells through retail outlets. Its monthly production capacity is 30,000...

 

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King Inc. manufactures sweaters which it sells through retail outlets. Its monthly production capacity is 30,000 sweaters, but it currently manufactures 17,500 sweaters per month (see table below). A large grocery chain has asked King to provide 7,500 sweaters for its employees at a selling price of $ 1 each. The cost of printing the grocery store logo on the jerseys is estimated at $ 1.60 per jersey. The sales commission will be reduced to 3% or 0.30 cents per sweater on this special order. The cost per unit for raw material, direct labor, and variable overhead costs will not change with this order. In addition, this special order will have no impact on other fixed costs. Monthly budgeted costs for 17,500 units Per unit Total 350 000 $ Products or income 20 $ Raw materials, direct labor and variable manufacturing overheads 8 140 000 Sales commission @ 5% 1 17 500 11 192 500 Variable cost margin Corrected costs 6 105 000 Operating profit 5 87 500 $ Work to do: 1. From a strictly quantitative point of view, what should Linen do: accept or refuse this special order? 2. What are the qualitative factors to consider in the final decision? 3. What is your final recommendation taking into account your quantitative and qualitative analyzes? King Inc. manufactures sweaters which it sells through retail outlets. Its monthly production capacity is 30,000 sweaters, but it currently manufactures 17,500 sweaters per month (see table below). A large grocery chain has asked King to provide 7,500 sweaters for its employees at a selling price of $ 1 each. The cost of printing the grocery store logo on the jerseys is estimated at $ 1.60 per jersey. The sales commission will be reduced to 3% or 0.30 cents per sweater on this special order. The cost per unit for raw material, direct labor, and variable overhead costs will not change with this order. In addition, this special order will have no impact on other fixed costs. Monthly budgeted costs for 17,500 units Per unit Total 350 000 $ Products or income 20 $ Raw materials, direct labor and variable manufacturing overheads 8 140 000 Sales commission @ 5% 1 17 500 11 192 500 Variable cost margin Corrected costs 6 105 000 Operating profit 5 87 500 $ Work to do: 1. From a strictly quantitative point of view, what should Linen do: accept or refuse this special order? 2. What are the qualitative factors to consider in the final decision? 3. What is your final recommendation taking into account your quantitative and qualitative analyzes?

Answer rating: 100% (QA)

iAs it is seen from the above that the Contribution Margin Per Units is Negetive by 890 per unit and ... View the full answer