. Lawrance designs and manufactures fashionable men’s clothing. For the coming year, the company has scheduled production of 40,000 suede jackets. Budgeted costs for this product are as follows. Unit Costs (40,000 Units) Total Variable manufacturing costs $ 50 $ 2,000,000 Variable selling expenses 20 800,000 Fixed manufacturing costs 10 400,000 Fixed operating expenses 5 200,000 Total costs and expenses $ 85 $ 3,400,000 The management of D. Lawrance is considering a special order from Discount Apparel for an additional 10,000 jackets. These jackets would carry the Discount Apparel label, rather than the D. Lawrance label. In all other respects, they would be identical to the regular D. Lawrance jackets. Although D. Lawrance regularly sells its jackets to retail stores at a price of $150 each, Discount Apparel has offered to pay only $80 per jacket. However, because no sales commissions would be involved with this special order, D. Lawrance will incur variable selling expenses of only $5 per unit on these sales, rather than the $20 it normally incurs. Accepting the order would cause no change in the company’s fixed manufacturing costs or fixed operating costs. D. Lawrance has enough plant capacity to produce 55,000 jackets per year. Required: a. Using incremental revenue and incremental costs, compute the expected effect of accepting this special order on D. Lawrance's operating income.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
D. Lawrance designs and manufactures fashionable men’s clothing. For the coming year, the company has scheduled production of 40,000 suede jackets. Budgeted costs for this product are as follows.
| Unit Costs (40,000 Units) | Total | ||||||
| Variable |
$ | 50 | $ | 2,000,000 | |||
| Variable selling expenses | 20 | 800,000 | |||||
| Fixed manufacturing costs | 10 | 400,000 | |||||
| Fixed operating expenses | 5 | 200,000 | |||||
| Total costs and expenses | $ | 85 | $ | 3,400,000 | |||
The management of D. Lawrance is considering a special order from Discount Apparel for an additional 10,000 jackets. These jackets would carry the Discount Apparel label, rather than the D. Lawrance label. In all other respects, they would be identical to the regular D. Lawrance jackets.
Although D. Lawrance regularly sells its jackets to retail stores at a price of $150 each, Discount Apparel has offered to pay only $80 per jacket. However, because no sales commissions would be involved with this special order, D. Lawrance will incur variable selling expenses of only $5 per unit on these sales, rather than the $20 it normally incurs. Accepting the order would cause no change in the company’s fixed manufacturing costs or fixed operating costs. D. Lawrance has enough plant capacity to produce 55,000 jackets per year.
Required:
a. Using incremental revenue and incremental costs, compute the expected effect of accepting this special order on D. Lawrance's operating income.
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