Mohave Corp. makes several vanieties of beach umbrellas and accessories. It has

Question

Mohave Corp. makes several vanieties of beach umbrellas and accessories. It has been approached by a company called Lost Mine Industries about producing a special order for a custom umbrella called the Utimate Shade (US). The special-order umbrellas with the Lost Mine Company logo would be distributed to participants at an upcoming convention sponsored by Lost Mine Lost Mine has offered to buy 2,000 of the US umbrellas at a price of $16 each. Mohave currently has the excess capacity necessary to accept the offer. The following information is related to the production of the US umbrella Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead 7.00 3.00 3.50 2.50 $16.00 24.00 Total cost Regular sales price Required: 1. Compute the incremental profit (or loss) from accepting the special order by 2. Should Mohave accept the special order? Yes No 3. Suppose that the special order had been to purchase 2,500 umbrellas for $12.00 each. Recompute the incremental profit (or loss) from accepting the special order under this scenario (or by 4. Assume that Mohave is operating at full capacity. Calculate the special-order price per unit at which Mohave would be indifferent between accepting or rejecting the special order Order Price per Unit

Explanation / Answer

Dear Student Thank you for using Chegg Please find below the answer Statementshowing Computations Paticulars Amount 1) Revenue from special order = 2000*16                 32,000.00 Less Costs: Direct materials = 2000*7                 14,000.00 Direct labour = 2000*3                   6,000.00 Variable manufacturing overhead = 2000*3.50                   7,000.00 Total Costs                 27,000.00 Income from special order = 32000 - 27000                   5,000.00 2) yes Mohave should accept the special order 3) Revenue from special order = 2500*12                 30,000.00 Less Costs: Direct materials = 2500*7                 17,500.00 Direct labour = 2500*3                   7,500.00 Variable manufacturing overhead = 2500*3.50                   8,750.00 Total Costs                 33,750.00 Income from special order = 30000 - 33750                 (3,750.00) 4) Indifferent price would be the regular sales price i.e. 24. since it is operating at full capacity so any lost in sales should be compensated by equal gain in sales

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