The Ferreira Enterprises has the capacity to produce 5,400 units per year. Its p
ID: 2447591 • Letter: T
Question
The Ferreira Enterprises has the capacity to produce 5,400 units per year. Its predicted operations for the year are as follows:
The accounting department has prepared the following projected income statement for the coming year for your use in making decisions:
A. Should the company accept a special order for 600 units at a selling price of $8?
A2. Assuming that there are no variable marketing and administrative costs for this order and that regular sales will not be affected, what is the impact of this decision on company profits? Increase/decrease by how much?
B. Suppose that the preceding order has a onetime setup fee of $1,800. Should the special order be accepted? Yes or No
D. Disregarding questions A through C, suppose that regular sales would be reduced by 200 units if the special order were accepted. What impact would this have on the company's decision?
The special order will Increase/decrese profits by how much but the overall profit will increase/decrease by what amount?
Sales (4,200 units @ $20 each) $84,000 Manufacturing costs: Variable $4 per unit Fixed $12,000 Marketing and administrative costs: Variable $1 per unit Fixed $8,000Explanation / Answer
A) Variable cost is a cost which varies with level of output ,where fixed cost remain constant whether special order is accepted or not.so Variable cost is a relevant cost whereas fixed cost is a irrelevant cost while making decision
Total cost if order is accepted =Total variable cost
= 4+1 = $5
Profit = 8- 5 = $3 per unit
since there is a profit ,offer should be accepted.
A-2)Profit = 8 -4 = 4 per unit
Total profit = 600 * 4 = $ 2400
Total profit will increase by2400
B)yes,As still there will be a profit of (2400 -1800 ) =$ 600
D)Loss of contribution on 200units= (20-4-1) * 200
= 15* 200
= $ 3000
Profit from accepting special order= 2400 - 3000 = (600)
Profit will decrease by $ 600
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.