Tolman Sunglasses sell for about $157 per pair. Suppose that the company incurs

Question

Tolman Sunglasses sell for about $157 per pair. Suppose that the company incurs the following average costs per pair (Click the on to view, the cost information.) Tolman has enough idle capacity to accept a one-time-only special order from Water Shades for 19,000 pairs of sunglasses at $73 per pair. Tolman will not incur any variable selling expenses for the order. Read the requirements qualitative) factors should Tolman's managers consider in deciding whether to accept the order? Prepare the analysis to determine the effect on operating income.(Enter decreases to profits with a parentheses or minus sign.) sunglasses x ]sunglasses x [ [ n operating income Expected increase in revenues Expected increase in expenses should Tolman's managers consider in deciding whether to accept the Data Table Water Shades? If so, will these other customers demand lower sale Direct materials Direct labor Variable manufacturing ovorhoad Variable seling expenses Fixed manufacturing overhead Total cost 36 arting a price war? 25ext question $1,950,000 Total fxed manufacturing overhead/78,000 Pairs of sunglasses 17 8 2 3 4 5 6 8

Explanation / Answer

the following is the analysis to determine the effect on operating income of the acceptance of special order:

note:

relevant expenditure per unit is shown below:

variable selling expenses and fixed manufacturing overheads are not relevant for the special order decision.

Expected increase in revenues 19,000 sunglasses x $73 per pair ..... $1,387,000 expected increase in expenses(see note) 19,000 sunglasses x $53 per pair ($1,007,000) Expected INCREASE in operating income $380,000

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