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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