Sebastian Company produced and sold 50,000 units of product and is operating at 70% of plant capacity. Unit information about its product is as follows: Sales price $70 Variable manufacturing cost $45 Fixed manufacturing cost ($500,000 ÷ 50,000) 10 55 Profit per unit $15 The company received a proposal from a foreign company to buy 10,000 units of Sebastian Company’s product for $50 per unit. This is a one-time only order and acceptance of this proposal will not affect the company’s regular sales. The president of Sebastian Company is reluctant to accept the proposal because he is concerned that the company will lose money on the special order. Instructions Prepare a schedule reflecting an incremental analysis of this proposal and indicate the effect the acceptance of this order might have on the company’s income.
Problem 5 (9-13 min)
Sebastian Company produced and sold 50,000 units of product and is operating at 70% of plant capacity. Unit information about its product is as follows:
Sales price $70
Variable
Fixed manufacturing cost ($500,000 ÷ 50,000) 10 55
Profit per unit $15
The company received a proposal from a foreign company to buy 10,000 units of Sebastian Company’s product for $50 per unit. This is a one-time only order and acceptance of this proposal will not affect the company’s regular sales. The president of Sebastian Company is reluctant to accept the proposal because he is concerned that the company will lose money on the special order.
Instructions
Prepare a schedule reflecting an incremental analysis of this proposal and indicate the effect the acceptance of this order might have on the company’s income.
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