Ludolph Industries has an annual plant capacity of 68,000 units; current production is 57,000 units per year. At the current production volume, the variable cost per unit is $34.00 and the fixed cost per unit is $4.70. The normal selling price of Ludolph's product is $48.00 per unit. Ludolph has been asked by Factory Company to fill a special order for 6,000 units of the product at a special sales price of $30.00 per unit. Factory is located in a foreign country where Ludolph does not currently operate. Factory will market the units in its country under its own brand name, so the special order is not expected to have any effect on Ludolph's regular sales. Read the requirements. Requirement 1. How would accepting the special order impact Ludolph's operating income? Should Ludolph accept the special order? Complete the following incremental analysis to determine the impact on Ludolph's operating income if it accepts this special order. (Enter a "0" for any zero balances. Use parentheses or a minus sign to indicate a decrease in contribution margin and/or operating income from the special order.) Incremental Analysis of Special Sales Order Decision Revenue from special order Less expenses associated with the order: Less: Variable manufacturing cost Contribution margin Less: Additional fixed expenses associated with the order Increase (decrease) in operating income from the special order Requirements Total Order (6,000 units) 1. How would accepting the special order impact Ludolph's operating income? Should Ludolph accept the special order? 2. How would your analysis change if the special order sales price were to be $37.00 per unit and Ludolph would have to pay an attorney a fee of $12,000 to make sure it is complying with export laws and regulations relating to the special order?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Transcribed Image Text:Ludolph Industries has an annual plant capacity of 68,000 units; current production is 57,000 units per year. At the current production volume, the variable cost per unit is $34.00 and the fixed cost per unit is $4.70. The normal selling price of Ludolph's product is $48.00 per unit. Ludolph has been asked by Factory Company to fill a special order for 6,000 units of the product at a special sales price of $30.00 per unit. Factory is located in a foreign country where Ludolph does not currently operate. Factory will market the units in its country under its own brand name, so the special order is not expected to have any effect on Ludolph's regular sales. Read the requirements. Requirement 1. How would accepting the special order impact Ludolph's operating income? Should Ludolph accept the special order? Complete the following incremental analysis to determine the impact on Ludolph's operating income if it accepts this special order. (Enter a "0" for any zero balances. Use parentheses or a minus sign to indicate a decrease in contribution margin and/or operating income from the special order.) Incremental Analysis of Special Sales Order Decision Revenue from special order Less expenses associated with the order: Less: Variable manufacturing cost Contribution margin Less: Additional fixed expenses associated with the order Increase (decrease) in operating income from the special order Requirements Total Order (6,000 units) 1. How would accepting the special order impact Ludolph's operating income? Should Ludolph accept the special order? 2. How would your analysis change if the special order sales price were to be $37.00 per unit and Ludolph would have to pay an attorney a fee of $12,000 to make sure it is complying with export laws and regulations relating to the special order?

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