Carlsbad Enterprises has a capacity to produce 360,000 computer cases per year. The company is currently producing and selling 280,000 cases per year at a selling price of $396 per case. The cost of producing and selling one case follows: Variable manufacturing costs $ 159 Fixed manufacturing costs 41 Variable selling and administrative costs 85 Fixed selling and administrative costs 20 Total costs $ 305 The company has received a special order for 40,000 cases at a price of $250 per case. Because it does not have to pay a sales commission on the special order, the variable selling and administrative costs would be only $52 per case. 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 $ 250 Variable manufacturing costs 159 Fixed manufacturing costs 41 Variable selling and administrative costs 52 Fixed selling and administrative costs 20 Net loss per case $ (22 ) Required: a. Compute the differential profit/loss if the order is accepted.(Enter your answers in thousands of dollars.) b. From an operating profit perspective for the current year, do you agree with the decision to reject the special order? Yes No
Company has a capacity to produce 360,000 computer cases per year.
The company is currently producing and selling 280,000 cases per year
selling price of $396 per case.
The cost of producing and selling one case
| Particular | Amount in $ | Amount in $ |
| selling price | 396 | 396 |
| Less : | ||
| Variable manufacturing costs | 159 | |
| Fixed manufacturing costs | 41 | 200 |
| 196 | ||
| Less : | ||
| Variable selling and administrative costs | 85 | |
| selling and administrative costs | 20 | 105 |
| 91 |
The company has received a special order for 40,000 cases at a price of $250 per case.
| Particular | Amount in $ | Amount in $ | Total for 40,000 units |
| selling price | 250 | 250 | 10000000 |
| Less : | |||
| Variable manufacturing costs | 159 | ||
| Fixed manufacturing costs | 0 | 159 | 6360000 |
| 91 | 3640000 | ||
| Less : | |||
| Variable selling and administrative costs | 52 | ||
| selling and administrative costs | 0 | 52 | 2080000 |
| 39 | 1560000 |
Conculsion
Special order should be accepted because it will increase in the net profit by 1560,000$ fixed cost will not be consider in adition 40,000 units production because weather we produce or not we have to pay fixed cost so this praposal should be accepted
