The Critchfield Company has annual productive capcity of $60,000 units per year.

Question

The Critchfield Company has annual productive capcity of $60,000 units per year. Budgeted operating results for 200X are as follows: Rvenues (50,000 units @ $10) $500,000 Variable Costs: Manufacturing (50,000 @ $3.20) $160,000 Selling (50,000 @ $0.80) 40,000 200,000 Contribution Margin $300,000 Fixed Costs: Manufacturing $100,000 Selling and administrative 80,000 180,000 Operating Income $120,000 A whoesaler wants to buy 5,000 units at a price of $8 per unit. Variable manufacturing cost would be the same per unit, but variable selling costs would increase by $2 per unit on the special order only. 1) Determine whether the company should accept or reject the special order.
(Show your computations) The Critchfield Company has annual productive capcity of $60,000 units per year. Budgeted operating results for 200X are as follows: Rvenues (50,000 units @ $10) $500,000 Variable Costs: Manufacturing (50,000 @ $3.20) $160,000 Selling (50,000 @ $0.80) 40,000 200,000 Contribution Margin $300,000 Fixed Costs: Manufacturing $100,000 Selling and administrative 80,000 180,000 Operating Income $120,000 A whoesaler wants to buy 5,000 units at a price of $8 per unit. Variable manufacturing cost would be the same per unit, but variable selling costs would increase by $2 per unit on the special order only. 1) Determine whether the company should accept or reject the special order.
(Show your computations)

Explanation / Answer

Incremental analysis :

Company should accept the special order

Incremental revenue (5000*8) 40000 Incremental cost Variable manufacturing cost (5000*3.2) 16000 Variable selling cost (5000*2.8) 14000 Total incremental cost 30000 Incremental profit (loss) 10000

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