Feinan Sports, Inc., manufactures sporting equipment, including weight- lifting gloves. A national sporting goods chain recently submitted a special order for 4,600 pairs of weight-lifting gloves. Unfortunately, the order's offering price of $14.80 per pair was far below the regular price of $25, and even below the cost of production. One marketing manager was opposed to taking a loss on the deal. However, the personnel manager argued in favor of accepting the order even though a loss would be incurred; it would avoid the problem of layoffs and would help maintain the community image of the company. The full cost to produce and sell a regular pair of weight-lifting gloves is presented below. Direct material Direct labor Variable overhead Fixed overhead Variable selling and adm. Total 7.5 3.9 1.6 3.1 2.8 18.9 No variable selling or administrative expenses would be associated with the special order. Required: (You must Provide supporting computations.) 1. Assume that the company has ample excess capacity to accept the order. Calculate the change in profit if the order is accepted. Should the company accept or reject the order? 2. Suppose that Feinan has excess capacity for only 3,600 pairs of gloves. To accept this order, it would have to give up part of regular sales. What amount of contribution margin would it give up to accept this order? 3. Continue with Req.2, what is the minimum price Feinan should charge to accept this order?
Feinan Sports, Inc., manufactures sporting equipment, including weight- lifting gloves. A national sporting goods chain recently submitted a special order for 4,600 pairs of weight-lifting gloves. Unfortunately, the order's offering price of $14.80 per pair was far below the regular price of $25, and even below the cost of production. One marketing manager was opposed to taking a loss on the deal. However, the personnel manager argued in favor of accepting the order even though a loss would be incurred; it would avoid the problem of layoffs and would help maintain the community image of the company. The full cost to produce and sell a regular pair of weight-lifting gloves is presented below. Direct material Direct labor Variable overhead Fixed overhead Variable selling and adm. Total 7.5 3.9 1.6 3.1 2.8 18.9 No variable selling or administrative expenses would be associated with the special order. Required: (You must Provide supporting computations.) 1. Assume that the company has ample excess capacity to accept the order. Calculate the change in profit if the order is accepted. Should the company accept or reject the order? 2. Suppose that Feinan has excess capacity for only 3,600 pairs of gloves. To accept this order, it would have to give up part of regular sales. What amount of contribution margin would it give up to accept this order? 3. Continue with Req.2, what is the minimum price Feinan should charge to accept this order?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Feinan Sports, Inc., manufactures sporting equipment, including weight-
lifting gloves. A national sporting goods chain recently submitted a special
order for 4,600 pairs of weight-lifting gloves. Unfortunately, the order's
offering price of $14.80 per pair was far below the regular price of $25, and
even below the cost of production. One marketing manager was opposed to
taking a loss on the deal. However, the personnel manager argued in favor of
accepting the order even though a loss would be incurred; it would avoid the
problem of layoffs and would help maintain the community image of the
company. The full cost to produce and sell a regular pair of weight-lifting
gloves is presented below.
Direct material
Direct labor
Variable overhead
Fixed overhead
Variable selling and adm.
Total
7.5
3.9
1.6
3.1
2.8
18.9
No variable selling or administrative expenses would be associated with the
special order.
Required: (You must Provide supporting computations.)
1. Assume that the company has ample excess capacity to accept the order.
Calculate the change in profit if the order is accepted. Should the company accept
or reject the order?
2. Suppose that Feinan has excess capacity for only 3,600 pairs of gloves. To accept
this order, it would have to give up part of regular sales. What amount of
contribution margin would it give up to accept this order?
3. Continue with Req.2, what is the minimum price Feinan should charge to accept
this order?
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