Raymond Industries has an annual plant capacity of 63,000 units; current product
ID: 2599430 • Letter: R
Question
Raymond Industries has an annual plant capacity of 63,000 units; current production is 51,000 units per year. At the current production volume, the variable cost per unit is $33.00 and the fixed cost per unit is $4.40. The normal selling price of Raymond's product is $48.00 per unit. Raymond has been asked by Caldwell Company to fill a special order for 6,000 units of the product at a special sales price of $23.00 per unit. Caldwell is located in a foreign country where Raymond does not currently operate. Caldwell will market the units in its country under its own brand name, so the special order is not expected to have any effect on Raymond's regular sales Read the requirements Requirement 1. How would accepting the special order impact Raymond's operating income? Should Raymond accept the special order? Complete the following incremental analysis to determine the impact on Raymond's operating income if it accepts this special order. (Enter a "O" for any zero balances. Use parentheses or a minus sign to indicate a decrease in contribution margin and/or operating income from the special order.) Total Order Incremental Analysis of Special Sales Order Decision (6,000 units) Revenue from special order Less expenses associated with the order Variable manufacturing cost Contribution margin Less: Additional fixed expenses associated with the order Increase (decrease) in operating income from the special order Raymond accept the special sales order because it will operating income Requirement 2. How would your analysis change if the special order sales price were to be $38.00 per unit and Raymond would have to pay an attorney a fee of $10,000 to make sure it is complying with export laws and regulations relating to the special order? (Enter a "O" for any zero balances. Use parentheses or a minus sign to indicate a decrease in contribution margin and/or operating income from the special order.) Total Order Incremental Analysis of Special Sales Order Decision (6,000 units) Revenue from special order Less expenses associated with the order Variable manufacturing cost Contribution margin Less: Additional fixed expenses associated with the order Increase (decrease) in operating income from the special order Raymond accept the special sales order because it will operating incomeExplanation / Answer
Requirement: 1
Incremental Analysis of Special sales Order Decision
Total order (6000 units)
Revenue from special order
6000*23 = 138000
Less expenses associated with the order
Variable manufacturing cost
6000*33 = 198000
Contribution margin
138000-198000 = -60000
Less: Additional fixed expenses associated with the order
0
Increase(decrease) in operating income from the special order
-60000
Raymond should not accept the special sales order because it will decrease operating income.
Requirement: 2
Incremental Analysis of Special sales Order Decision
Total order (6000 units)
Revenue from special order
6000*38 = 228000
Less expenses associated with the order
Variable manufacturing cost
6000*33 = 198000
Contribution margin
228000-198000 = 30000
Less: Additional fixed expenses associated with the order
10000
Increase(decrease) in operating income from the special order
30000 – 10000 = 20000
Raymond should accept the special sales order because it will increase operating income.
Incremental Analysis of Special sales Order Decision
Total order (6000 units)
Revenue from special order
6000*23 = 138000
Less expenses associated with the order
Variable manufacturing cost
6000*33 = 198000
Contribution margin
138000-198000 = -60000
Less: Additional fixed expenses associated with the order
0
Increase(decrease) in operating income from the special order
-60000
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