This Question: 15 pts 30 of 39 (12 complete) Y This Test: 300 pts possible Telma

Question

This Question: 15 pts 30 of 39 (12 complete) Y This Test: 300 pts possible Telman Sungissees sel for abcut $158 per pair. Suppcshat the compamy incurs the folowing average costs per peir: ?(Click the icon la view the cost informaion.) Tol an has enough idio capacty to accept one timeon y special o dor from water srades to 26 000 pers of ?? asses at S85 per pair. Tol na will not incur am war ablu being expenses to the order Road tho requiromone Require ent 1 How woud acce trg the cr er ? ect To man's operatrg in ein addi on to the spec l order's effect on pro s, what ter longer-term qus ta ve tators should Toman's mar agers considerin deodrg whether o aco pt the order? Propare the analysis to datemine the affact en operating income. Entar decroeases to profts with a parentheses or minus sign.) Expected incresse in revenues Expected increase in expanses 28000 sunglassesx Expected n opeating income sunglasses x In addtion to the spocial ordor's offuct on protts, what other (longor term cualitativo) factors should Tolman's managers considor in dociding whethor to accopt the orcor? O A. WI lcwering the aalo price aish Tolmans imaga as a high-qualty brand? O B Tolmer 's other customers find out about lower 5 e proe Tohan o ered o ater Shades? If so, wil ewe other customers dernand lover 8ale proes? C. How wil Toman's compettore roaci? wil th?y retallo by cutting thor prices and etrting a price war? D. Al of the above OE None of the above Raguire ment 2. Talman's mark ng manager, Petar Juda, argues aga st aco p in When deciding whether to accept a special crder, we ahouid compare the $08 o cost of makng thesunglassos is he special oder because tho c ar prce of $85 s uss an Tolmar s $B6 co to m a the sunglasse? Juda asks you as one of To mans sta accountants to ? plain what or his ana sis is como t what ould you say? Costa that we wll incurwhether er not we fil the order are toour decision. Ths a why ompering the S85 price Weter Snades cfered us with our Data Table The additional ruvenues and tho adcitional oocts that wo will inour to ill the spocial crder are Requirerments the Water Shades special order, we will ncur cnly af addtionall oost per pair, which isthan the $85 per pair that Water Shades offired.Therefore, we should the special arder to the companys the special order to Direct materials 38 operating incoma. 1. How woud accecting the order afect Tolman's operating income? In addifion to the special crdar's ofect on profts what cher (longer-tem qualtative) factors shculd Tolman's managers consider in deciding whether to accept the order? Direct labar ariable manufacturing oveead ariable seling expense8 Fixod manufacturing cvorhead Total cost 2. Taiman's marketng manager, Peser Juda, arguea ogainst accopting the special crder becsuse he offer price of $85 is less than Tolman's $88 cost to make the sunglasses. Juds asks you sa one of Toman's stati scoursanta, 10 plain whether his analys? corect, what would you say? 25 . Choosa from any st or enter any numbar in the Input flalds and then continue to the noot question. 52.000,000 Total fixed manufacturing overhead 80,000 Pairs of sunglas8s8 Print Done

Explanation / Answer

Solution 1:

Special order price = $85

Variable manufacturing costs per unit for special order = $38 + $15 + $5 = $58

Expected increase in revenues = 28000 *$85 = $2,380,000

Expected increase in expenses = 28000*$58 = $1,624,000

Expected increase in Operating income = $2380000 - $1624000 = $756,000

In order to the special order's effect on profits, the manager should consider all of the above factors in deciding whrther to accept the order.

Hence Option "D" is correct.

Solution 2:

When deciding whether to accept a special order, we should compare the variable costs which will incur due to accepting the order.

Costs that we will icur whether or not we fill the order are irrelevant (not relevant) to our decesion.

This is why comparing the $85 price with our $86 total cost of making the sunglasses is incorrect.

The additional revenues and the additional costs that we will incur to fill the special order are relevant. If w eaccept the special order, we will only $58 of additional cost per pair, which is less than the $85 per pair that water shades offered.

Therefore we should accept the special order to increase the company's operating income.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.