Special Order Tobitzu TV produces wall mounts for flat panel television sets. Th
ID: 2471891 • Letter: S
Question
Special Order Tobitzu TV produces wall mounts for flat panel television sets. The forecasted income statement for 2009 is as follows:
Net income
Additional Information
(1) Of the production costs and selling expenses, $700,000 and $100,000, respectively, are fixed. (2) Tobitzu TV received a special order from a hospital supply company offering to buy 14,000 wall mounts for $29. If it accepts the order, there will be no additional selling expenses, and there is currently sufficient excess capacity to fill the order. The company's sales manager argues for rejecting the order because "we are not in the business of paying $32 to make a product to sell for $29."
Calculate the net benefit (cost) of accepting the special order
$700,000
TOBITZU TVBudgeted Income Statement
For the Year 2009 Sales ($41 per unit) $4,100,000 Cost of good sold ($32 per unit) (3,200,000) Gross profit 900,000 Selling expenses ($2 per unit) (200,000)
Net income
Additional Information
(1) Of the production costs and selling expenses, $700,000 and $100,000, respectively, are fixed. (2) Tobitzu TV received a special order from a hospital supply company offering to buy 14,000 wall mounts for $29. If it accepts the order, there will be no additional selling expenses, and there is currently sufficient excess capacity to fill the order. The company's sales manager argues for rejecting the order because "we are not in the business of paying $32 to make a product to sell for $29."
Calculate the net benefit (cost) of accepting the special order
$700,000
Explanation / Answer
No of units sold = 4,100,000/41
= 100,000
Total cost of goods sold = $ 3,200,000
(-) Fixed cost of goods sold = $ 700,000
---------------------
Variable Cost of goods sold = $ 2,500,000
No of units = 100,000
Variable cost of goods sold per unit = 2,500,000/100,000 = $ 25
Selling units = 14,000
Selling price = $ 29
Variable cost of goods sold per unit = $ 25
Contribution per unit = Selling price – variable cost
= 29 – 25 = $ 4
Total contribution unit =14,000 x 4 = $ 56,000
Net benefit = $ 56,000
Accepting the special order Tobitzu TV get benefit of $ 56,000.
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