Special Order, Terminology, and Unit Costs Please include step by step instructi

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Special Order, Terminology, and Unit Costs

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5-BI Special Order, Terminology, and Unit Costs Following is the income statement of Danube Company, a manufacturer of men's blue jeans: Danube Company Income Statement for Last Year Sales Less cost of goods sold Gross margn Less selling and administrative expenses Operating income Total $40,000,000 24.000,000 $16,000,000 15.000,000 $1,000,000 Per Unit $20.00 12.00 $ 8.00 7.50 $ .50 Danube had manufactured 2 million pairs of jeans, which had been sold to various clothing wholesalers and department stores. Early in the year, the president, Rosie Valenzuela, died from a stroke. Her son, Ricardo, became the new president. Ricardo had worked for 15 years in the marketing phases of the business. He knew very little about accounting and manufacturing, which were his mother's strengths. Ricardo has several questions for you including inquiries regarding the pricing of special orders.

Explanation / Answer

1. Income statement under contribution format Total Per unit Sales 40000000 20 Less: Variable costs Mfg. 19000000 9.5 S&A 9000000 4.5 Total Variable costs 28000000 14 Contribution 12000000 6 Less: Fixed costs Mfg. 5000000 S&A 6000000 Total Fixed costs 11000000 Opg. Income 1000000 As per contribution format, Costco's 100000 order at 17 Sale value 1700000 17 Varaible mfg.costs 950000 9.5 Addl.Sales commisions 20000 Operating income will increase by 730000 3.   Land's End Offer price   = 9.2/unit Is not even covering the variable manufacturing cost of 9.5 /unit Total Per unit Sales 4600000 9.2 Less: Variable mfg.costs 4750000 9.5 Contribution loss -150000 -0.075 Operating income will decrease by 150000 ,if this order is accepted.

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