The Purple Haze Co has the capacity to produce 9,000 umbrellas per year. The com

Question

The Purple Haze Co has the capacity to produce 9,000 umbrellas per year. The company, using statistical analysis, projects the following:

Use the data above to answer the following:

1.Should the company accept a special order (as explained in the chapter, this means you will continue to do the business you are now doing - $60,000 plus the new sales) for 1,000 units at a price of $6 if:

2.There will be no variable selling & administrative costs for the special order. Should they take the special order based purely on the financial information? (They will continue to sell the 6,000 units they sell now as well as the new units)

3.Assume the same facts as in Question 1 except that there will be a $2,000 set up fee for the special order. Should they take the special order based purely on the financial information?

4.How would your analysis change if the company only had the capacity to produce 6,000 units?

5.What other factors need to be considered?

6.Identify the stakeholders and evaluate the potential impact on each stakeholder.

(I have parts 1-4) ONLY NEED PARTS 5-6

Sales -6,000@ $10 for a total of $60,000 Manufacturing Costs Variable Fixed Selling & Administrative Variable $1 Fixed $4 per unit $15,000 per unit $4,000

Explanation / Answer

5. The most important factor that needs to be considered here is whether the special order will affect the planned sales in any way either now or in the future. It may so happen that special orders may even lead to unhappy existing customers when they find about the special deal being given to someone else.

In this case the sale price for the special order is $6 per umbrella and this is quite low compared to the usual sale price of $10. So if the existing customers find out about this they will be unhappy and may probably want a deal to be offered to them as well.

6. The stakeholders are the owners of the company, existing customers and new customers. The stakeholders will be quite happy with the special order as they will be utilizing their excess capacity and earning additional contribution margin as a result. The existing customers will be unhappy as they have to buy the umbrellas at a higher price. Lastly the new customers (i.e. the customer who has placed the special order) will be happy buying at a lower price.

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