Module Three Problem Set

Question 1 of 5

The management team of Blue Industries was evaluating its performance for the first half of the year. Production and sales of its fans were on budget at 3,000 units to date, with the following income statement reflecting its income for the first half of the year.

Sales				$249,000
Variable costs:
DM		$42,000
DL		30,000
Variable-MOH		9,000
Variable selling		6,000		87,000
Contribution margin				162,000
Fixed costs:
Fixed-MOH		37,000
Fixed selling		118,000		155,000
Operating income (loss)				$7,000

Orders for the second half of the year were coming in slower than what the company had been expecting. When a new customer called and requested a special discount, the sales team listened.

(b)

Blue Industries would be better off worse off by $ by accepting this order.

(c)

Assume instead the customer requests 135 units and both a discounted price of $41 per unit and a customized version of the fan. In order to make the customized version, Blue will need to purchase a special piece of equipment for $2,510, but it will not incur any variable selling costs for this order. How much better or worse off will the company be if it uses its available capacity and accepts this special order?