.11 TFw 8:05 PM O ezto.mheducation.com * 71% Fairmount Travel Gear produces back
ID: 2336696 • Letter: #
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.11 TFw 8:05 PM O ezto.mheducation.com * 71% Fairmount Travel Gear produces backpacks and sells them to vendors who sell them under their own label. The cost of one of its backpacks follows: Materials Labor Variable overhead Fioxed overhead ($2,751,100 per year; 451,000 units per year) Total Riverside Discount Mart, a chain of low-price stores, has asked Fairmount to supply it with 20,000 backpacks for a special promotion Riverside is planning. Riverside has offered to pay Fairmount a unit price of $43 per pack. The regular selling price is $61 The special order would require some modification to the basic model. These modifications would add $4.10 per unit in material cost, $1.60 per unit in labor cost and $0.60 in variable overhead cost. Although Fairmount has the capacity to produce the 20,000 units without affecting its regular production of 451,000 units, a one-time rental of special testing equipment to meet Riverside's requirements would be needed. The equipment rental would be $49,000 and would allow Fairmount to test up to 51,000 units. Required: a. Prepare a schedule to show the impact of filling the Riverside order on Fairmont's profits for the year. (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.) b. Do you agree with the decision to accept the special order? c. Considering only profit, determine the minimum quantity of backpacks in the special order that would make it profitable. (Do not round intermediateExplanation / Answer
Status Quo 451000 Alternative 471,000 Units Difference Sales revenue 27511.0 28371.0 860.0 higher Less variable costs: Materials 8163.1 8607.1 444.0 higher Labor 5457.1 5731.1 274.0 higher Variable overhead 2300.1 2414.1 114.0 higher Total variable cost 15920.3 16752.3 832.0 higher Contribution margin 11590.7 11618.7 28.0 higher Less: Fixed costs 2751.1 2800.1 49.0 higher Operating profit (loss) 8839.6 8818.6 21.0 lower b No c Minimum quantity of backpacks = 49000/(43-18.1-12.1-5.1-4.1-1.6-0.6)= 35000
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