The management team of Blue Industries was evaluating its performance for the first half of the year.
Question:
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)
Your answer is incorrect.
Assume instead that the customer requests 90 units in the special order and offers $40 per unit. Blue management still believes there will be enough capacity to take on the special order. This time, however, variable selling costs will be incurred because the customer is working through a sales representative. How much better or worse off will Blue Industries be if it accepts this special order?
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?
Cornerstones of Cost Management
ISBN: 978-1285751788
3rd edition
Authors: Don R. Hansen, Maryanne M. Mowen