Chapter Z1-Dlnerentdal Analysls 5. Analyzing a Special Order EPI has been approa

Question

Chapter Z1-Dlnerentdal Analysls 5. Analyzing a Special Order EPI has been approached by a fourth-grade teacher from Phoenix about the possibility of creating a specially designed that would be customized for her classroom and environment The teacher would like an educational game to correspond to her classroom coverage of the history of the desert Southwest and the state of Arizona in particular. EPI has not sold its products directly to teachers or school systems in the past, but that possibility was identified during a recent mecting of EPI's Marketing Department. The teacher has offered to buy 1,000 copies of the CD at a price of S5 cach. EPI could casily modify one of its existing educational programs about U.S. history to accommodate the request. The modifications would cost approximately S500. A summary of the information related toEPl's current history program Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead S 1.2S 0.50 2.25 2.00 S 6.00 $12.00 Total cost per unit Sales price per unit Required A. B. C. Determine the impact this special order would have on EPI's total profit. Should EPI accept the special order? Suppose that the special offer had been to purchase 1,000 copies of the program for $4.50 each. What effect would that offer have on EPI's total profit? Explain why a company might accept a special order that did not increase profits. D.

Explanation / Answer

a) Incremental analysis

Total profit increase by $500

b) EPI should accept the special order

c) Incremental analysis

No effect on special order

d) Because of no loss occur

Incremental revenue (1000*5) 5000 Incremental cost Direct material (1000*1.25) -1250 Direct labour (1000*.50) -500 Variable manufacturing overhead (1000*2.25) -2250 Modification cosst -500 Incremental profit (loss) 500

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