Lundell manufactures floatation vests in Tampa, Florida. Lundell’s contribution- margin income statement for the most recent month contains the following data: Sales in units 31,000 Sales revenue $ 434,000 Variable expenses: Manufacturing 93,000 Marketing and administrative 107,000 Total variable expenses 200,000 Contribution margin 234,000 Fixed expenses: Manufacturing 126,000 Marketing and administrative 90,000 Total fixed expenses 216,000 Operating income $ 18,000 Suppose Hill wants to buy 5,000 vests from Lundell. Acceptance of the order will not increase Lundell’s variable marketing and administrative expenses or any of its fixed expenses. The Lundell plant has enough unused capacity to manufacture the additional vests. Hill has offered $10 per vest, which is below the normal sale price of $14. Prepare analysis to determine whether Lundell should accept this special sales order. Identify long-term factors Lundell should consider in deciding whether to accept the special sales order.
Lundell manufactures floatation vests in Tampa, Florida. Lundell’s contribution- margin income statement for the most recent month contains the following data:
Sales in units 31,000
Sales revenue $ 434,000
Variable expenses:
Manufacturing 93,000
Marketing and administrative 107,000
Total variable expenses 200,000
Contribution margin 234,000
Fixed expenses:
Manufacturing 126,000
Marketing and administrative 90,000
Total fixed expenses 216,000
Operating income $ 18,000
Suppose Hill wants to buy 5,000 vests from Lundell. Acceptance of the order will not increase Lundell’s variable marketing and administrative expenses or any of its fixed expenses. The Lundell plant has enough unused capacity to manufacture the additional vests. Hill has offered $10 per vest, which is below the normal sale price of $14.
- Prepare analysis to determine whether Lundell should accept this special sales order.
- Identify long-term factors Lundell should consider in deciding whether to accept the special sales order.
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