Renault Hussin manufactures a single product with the following unit costs for 5,000 units: Direct materials $ 70 Direct labor 40 Factory overhead (40% variable) 100 Selling expenses (60% variable) 40 Administrative expenses (20% variable) 25 Total per unit $275 Recently, a company approached Renault Hussin about buying 1,000 units for $275. Currently, the models are sold to dealers for $420. Renault Hussin capacity is sufficient to produce the extra 1,000 units. For the special order there is no additional selling expenses would be incurred. Required: A. Calculate the profit earned by Renault Hussin on the original 5,000 units? B. Advise Rippey whether to accept the special order if its goal is to maximize short-run profits. How much will income be affected? C. Determine the minimum price Renault Hussin would want to receive in order to increase profits by $10,000 on the special order.
Renault Hussin manufactures a single product with the following unit costs for 5,000 units:
Direct materials $ 70
Direct labor 40
Factory
Selling expenses (60% variable) 40
Administrative expenses (20% variable) 25
Total per unit $275
Recently, a company approached Renault Hussin about buying 1,000 units for $275. Currently, the models are sold to dealers for $420. Renault Hussin capacity is sufficient to produce the extra 1,000 units. For the special order there is no additional selling expenses would be incurred.
Required:
A. Calculate the profit earned by Renault Hussin on the original 5,000 units?
B. Advise Rippey whether to accept the special order if its goal is to maximize short-run profits. How much will income be affected?
C. Determine the minimum price Renault Hussin would want to receive in order to increase profits by $10,000 on the special order.
D. Discuss qualitative aspects of the decision should Renault Hussin consider.
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