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?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question

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?

 

Required A Required B
What impact would accepting this special order have on operating profit? (Enter your answers in thousands rounded to 1
decimal place. (i.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:
Production
Administrative
Contribution margin
Fixed costs
Operating profit
Status Quo 62,000
Units
Costs and Revenues
(Thousands of Dollars)
Alternative 72,000
Units
Difference
Transcribed Image Text:Required A Required B What impact would accepting this special order have on operating profit? (Enter your answers in thousands rounded to 1 decimal place. (i.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: Production Administrative Contribution margin Fixed costs Operating profit Status Quo 62,000 Units Costs and Revenues (Thousands of Dollars) Alternative 72,000 Units Difference
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 4 steps

Blurred answer
Similar questions
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education