Links, Incorporated produces golf gloves. The gloves sell for $16 each. Variable costs are $8.50 and fixed costs are $1.50 each. An Australian company has offered to pay $12 each for 2,000 gloves. The manufacturing capacity will not be affected. by this special order and it will not affect regular sales. Fixed assets will not change but variable selling costs will increase by $1.75 a glove due to delivery costs. Required: Answer the following questions: (A) What is the relevant cost per unit on this special order? (B) How will company profits be affected if Links accepts the Australian company's offer? (C) Should the company accept this special order? Why?
Links, Incorporated produces golf gloves. The gloves sell for $16 each. Variable costs are $8.50 and fixed costs are $1.50 each. An Australian company has offered to pay $12 each for 2,000 gloves. The manufacturing capacity will not be affected. by this special order and it will not affect regular sales. Fixed assets will not change but variable selling costs will increase by $1.75 a glove due to delivery costs. Required: Answer the following questions: (A) What is the relevant cost per unit on this special order? (B) How will company profits be affected if Links accepts the Australian company's offer? (C) Should the company accept this special order? Why?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Links, Incorporated produces golf gloves.
The gloves sell for $16 each. Variable costs
are $8.50 and fixed costs are $1.50 each.
An Australian company has offered to pay
$12 each for 2,000 gloves. The
manufacturing capacity will not be affected.
by this special order and it will not affect
regular sales. Fixed assets will not change
but variable selling costs will increase by
$1.75 a glove due to delivery costs.
Required:
Answer the following questions:
(A) What is the relevant cost per unit on this
special order?
(B) How will company profits be affected if
Links accepts the Australian company's
offer?
(C) Should the company accept this special
order? Why?
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