year. The company is currently producing and selling 5,000 tents per year at a selling price of $1,350 per tent. The cost of producing and selling one tent follows: Variable manufacturing costs $ 530 Fixed manufacturing costs 135 Variable selling and administrative costs 125 Fixed selling and administrative costs 95 Total costs $ 885 The company has received a special order for 1,400 tents at a price of $690 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 $54 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 $ 690 Variable manufacturing costs 530 Fixed manufacturing costs 135 Variable selling and administrative costs 54 Fixed selling and administrative costs 95 Net profit (loss) per case $ (124) 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?
year. The company is currently producing and selling 5,000 tents per year at a selling price of $1,350 per tent. The cost of producing and selling one tent follows: Variable manufacturing costs $ 530 Fixed manufacturing costs 135 Variable selling and administrative costs 125 Fixed selling and administrative costs 95 Total costs $ 885 The company has received a special order for 1,400 tents at a price of $690 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 $54 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 $ 690 Variable manufacturing costs 530 Fixed manufacturing costs 135 Variable selling and administrative costs 54 Fixed selling and administrative costs 95 Net profit (loss) per case $ (124) 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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
ardin Outfitters has a capacity to produce 16,500 of their special arctic tents per year. The company is currently producing and selling 5,000 tents per year at a selling price of $1,350 per tent. The cost of producing and selling one tent follows:
| Variable |
$ 530 |
|---|---|
| Fixed manufacturing costs | 135 |
| Variable selling and administrative costs | 125 |
| Fixed selling and administrative costs | 95 |
| Total costs | $ 885 |
The company has received a special order for 1,400 tents at a price of $690 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 $54 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 | $ 690 |
|---|---|
| Variable manufacturing costs | 530 |
| Fixed manufacturing costs | 135 |
| Variable selling and administrative costs | 54 |
| Fixed selling and administrative costs | 95 |
| Net |
$ (124) |
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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