Rowe Tool and Die (RTD) produces metal fittings as a supplier to various manufacturing firms in the area. The following is the forecasted income statement for the next quarter, which is the typical planning horizon used at RTD. RTD expects to sell 58,000 units during the quarter. RTD carries no inventories. Amount Per Unit Sales revenue $ 1,734,200 $ 29.90 Costs of fitting produced 1,310,800 22.60 Gross profit $ 423,400 $ 7.30 Administrative costs 304,500 5.25 Operating profit $ 118,900 $ 2.05 Fixed costs included in this income statement are $377,000 for depreciation on plant and machinery and miscellaneous factory operations and $101,000 for administrative costs. RTD has received a request for 10,000 fittings to be produced in the next quarter from Endicott Manufacturing. Endicott has never purchased from RTD, although they have been a local company for many years. Endicott has offered to pay $21.30 per unit. RTD can easily produce the 10,000 units with its existing capacity. Production of the 10,000 units will incur all variable manufacturing costs but no fixed manufacturing costs. No administrative costs will be incurred because of the order. Required: a. What impact would accepting this special order have on operating profit? b. Should RTD accept the order?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Question

Rowe Tool and Die (RTD) produces metal fittings as a supplier to various manufacturing firms in the area. The following is the forecasted income statement for the next quarter, which is the typical planning horizon used at RTD. RTD expects to sell 58,000 units during the quarter. RTD carries no inventories.

	Amount	Per Unit
Sales revenue	$ 1,734,200	$ 29.90
Costs of fitting produced	1,310,800	22.60
Gross profit	$ 423,400	$ 7.30
Administrative costs	304,500	5.25
Operating profit	$ 118,900	$ 2.05

Fixed costs included in this income statement are $377,000 for depreciation on plant and machinery and miscellaneous factory operations and $101,000 for administrative costs. RTD has received a request for 10,000 fittings to be produced in the next quarter from Endicott Manufacturing. Endicott has never purchased from RTD, although they have been a local company for many years. Endicott has offered to pay $21.30 per unit. RTD can easily produce the 10,000 units with its existing capacity. Production of the 10,000 units will incur all variable manufacturing costs but no fixed manufacturing costs. No administrative costs will be incurred because of the order.

Required:

a. What impact would accepting this special order have on operating profit?

b. Should RTD accept the order?

Expert Solution