Hudson Bay Co. manufactures floatation vests in Norfolk, Virginia. Hudson Bay\'s
ID: 2527173 • Letter: H
Question
Hudson Bay Co. manufactures floatation vests in Norfolk, Virginia. Hudson Bay's contribution margin income statement for the most recent month contains the following data:
Sales in units 31,000
Sales in revenue $434,000
Variable expenses:
Manufacturing $186,000
Marketing and administrative 110,000
Total variable expenses 296,000
Contribution margin 138,000
Fixed expenses:
Manufacturing 130,000
Marketing and administrative 92,000
Total fixed expenses 222,000
Operating income (loss) $(84,000)
Suppose Craft Boats wishes to buy 4,600 vests from Hudson Bay. Acceptance of the order will not increase Hudson Bay 's variable marketing and administrative expenses. The Hudson Bay plant has enough unused capacity to manufacture the additional vests. Craft Boats has offered $8 per vest, which is below the normal sale price of $14.
Required:
a) Determine whether Hudson Bay should accept this special sales order.
b) Identify long-term factors Hudson Bay should consider in deciding whether to accept the special sales order.
Explanation / Answer
Dear Student Thank you for using Chegg Please find below the answer Statementshowing Computations Paticulars Amount Revenue from special order = 4600*8 36,800.00 Less Costs Variable manufacturing cost = 186000/31000*4600 27,600.00 Income from special order 9,200.00 Yes special order should be accepted as it will result in increase in income by $9,200 Long term factors to be considered a) Impact on existing sales b) whether unused capacity would be there c) Since the price would be less it might impact existng customers
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