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 62,000 units during the quarter. RTD carries no inventories.
Amount
Per Unit
Sales revenue
$ 1,928,200
$ 31.10
Costs of fitting produced
1,450,800
23.40
Gross profit
$ 477,400
$ 7.70
Administrative costs
337,900
5.45
Operating profit
$ 139,500
$ 2.25
Fixed costs included in this income statement are $403,000 for depreciation on plant and machinery and miscellaneous factory operations and $103,000 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 $21.70 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?
Transcribed Image Text:Sales revenue
Variable costs:
Production
Administrative
Contribution margin
Fixed costs
Operating profit
Status Quo
62,000 Units
$ 1,928,200.0
$
$
1,049,800.0 X
234,900.0 X
645,500.0 X
506,000.0 X
139,500.0 X
Costs and Revenues
(Thousands of Dollars)
Alternative
72,000 Units
$ 2,145,200.0 X
1,216,800.0 x
234,900.0
< Required A
Difference
higher
higher
none
higher
none
higher
Required B >
3 3 3 3 3
Leveraging special tenchniques in analyzing historical data to predict future trends. Forecasting covers the methods and types of forecasting and their application to case studies.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
