Answered: Nardin Outfitters has a capacity to…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter10: Short-term Decision Making

Section: Chapter Questions

Problem 4EB: Dimitri Designs has capacity to produce 30,000 desk chairs per year and is currently selling all...

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Question

Nardin Outfitters has a capacity to produce 12,000 of their special arctic tents per year. The company is currently producing and selling 5,000 tents per year at a selling price of $900 per tent. The cost of producing and selling one tent follows:

Variable manufacturing costs	$ 440
Fixed manufacturing costs	90
Variable selling and administrative costs	80
Fixed selling and administrative costs	50
Total costs	$ 660

The company has received a special order for 500 tents at a price of $600 per tent from Chipman Outdoor Center. It will not have to pay any sales commission on the special order, so the variable selling and administrative costs would be only $45 per tent. The special order would have no effect on total fixed costs. The company has rejected the offer based on the following computations:

Selling price per case	$ 600
Variable manufacturing costs	440
Fixed manufacturing costs	90
Variable selling and administrative costs	45
Fixed selling and administrative costs	50
Net profit (loss) per case	$ (25)