What is the impact on profit for the year if Nardin Outfitters accepts the special order? (Enter your answers in thousands rounded to 1 decimal place. (.e., 5,400,400 should be entered as 5,400.4). Select option "higher" or "lower", keeping Status Quo as the base. Select "none" if there is no effect.) Sales revenue Variable costs: Manufacturing Selling and administrative Contribution margin Fixed costs Operating profit (All revenues and costs in $000) Status Quo 5000 Units Alternative 7000 Units $ 8,250,000.0 $ $ $ 2,950,000.0 775,000.0 4,525,000.0 1,450,000.0 3,075,000.0 $ 9,750,000.0 Required A Difference 4,130,000.0 1,180,000.0 higher 897,000.0 122,000.0 higher $ 4,723,000.0 $ 198,000.0 higher 1,450,000.0 none 3,273,000.0 $ 198,000.0 higher 1.500,000.0 higher 0 Required B > 33 33
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Nardin Outfitters has a capacity to produce 19,500 of their special arctic tents per year. The company is currently producing and selling 5,000 tents per year at a selling price of $1,650 per tent. The cost of producing and selling one tent follows:
| Variable |
$ 590 |
|---|---|
| Fixed manufacturing costs | 165 |
| Variable selling and administrative costs | 155 |
| Fixed selling and administrative costs | 125 |
| Total costs | $ 1,035 |
The company has received a special order for 2,000 tents at a price of $750 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 $60 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 | $ 750 |
|---|---|
| Variable manufacturing costs | 590 |
| Fixed manufacturing costs | 165 |
| Variable selling and administrative costs | 60 |
| Fixed selling and administrative costs | 125 |
| Net |
$ (190) |
Required:
a. What is the impact on profit for the year if Nardin Outfitters accepts the special order?
b. Do you agree with the decision to reject the special order?
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