If the order is accepted, variable marketing costs on the special order would be reduced by 25 percent because all of the robes would be packed and shipped in one lot. However, if the offer is accepted, management cstimates that it will lose the sale of 2,000 robes at regular prices. a. What is the net gain or loss from the special order? b. Write a brief memo to management explaining why you think the company should or should not take the special order.
If the order is accepted, variable marketing costs on the special order would be reduced by 25 percent because all of the robes would be packed and shipped in one lot. However, if the offer is accepted, management cstimates that it will lose the sale of 2,000 robes at regular prices. a. What is the net gain or loss from the special order? b. Write a brief memo to management explaining why you think the company should or should not take the special order.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Golden Company, which manufactures robes, has enough idle capacity available to accept a
special order of 10,000 robes at $16 each. A predicted income statement for the year without
this special order follows:
Per Unit
Total
Sales revenue
$25.00
$2,500,000
Manufacturing costs
Variable
12.50
1,250,000
Fixed
3.50
350,000
Total manufacturing costs
16.00
1,600,000
Gross profit
9.00
900,000
Marketing costs
Variable
360,000
290,000
3.60
Fixed
2.90
Total marketing čosts
6.50
650,000
Operating profit
S 2.50
S 250,000
If the order is accepted, variable marketing costs on the special order would be reduced by
25
percent because all of the robes would be packed and shipped in one lot. However, if the
offer is accepted, management estimates that it will lose the sale of 2,000 robes at regular
prices.
a. What is the net gain or loss from the special order?
b. Write a brief memo to management explaining why you think the company should or
should not take the special order.
(CPA adapted)
anned with Car
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