Luxe Industries has an annual plant capacity of 73,000 units, current production
ID: 2599465 • Letter: L
Question
Luxe Industries has an annual plant capacity of 73,000 units, current production is 59,000 units per year. At the current production volume, the variable cost per unit is $33 00 and the fixed cost per unit is $4.80 The normal selling price of Luxe's product is $46.00 per unit. Luxe has been asked by Bramwall Company to fill a special order for 12,000 units of the product at a special sales price of $29.00 per unit. Bramwall is located in a foreign country where Luxe does not currently operate. Bramwall will market the units in its country under its own brand name, so the special order is not expected to have any effect on Luxe's regular sales. Read the requirements Requirement 1. How would accepting the special order impact Luxe's operating income? Should Luxe accept the special order? Complete the following incremental analysis to determine the impact on Luxe's operating income if it accepts this special order. (Enter a "0" 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 (12,000 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 Luxe accept the special sales order because it will operating incomeExplanation / Answer
Requirement :1
Incremental analysis of special order decision
Total order (12000 units)
Revenue from special order
12000*29 = 348000
Less: expenses associated with order
Variable manufacturing cost
12000*33 = 396000
Contribution margin
348000 – 396000 = -48000
Less: Additional fixed expenses associated with the order
0
Incresae (Decrease) in operating income from the special order
-48000
Luxe should not accept the special sales order because it will decrease operating income.
Requirement : 2
Incremental analysis of special order decision
Total order (12000 units)
Revenue from special order
12000*41 = 492000
Less: expenses associated with order
Variable manufacturing cost
12000*33 = 396000
Contribution margin
492000 – 396000 = 96000
Less: Additional fixed expenses associated with the order
11000
Incresae (Decrease) in operating income from the special order
96000 – 11000 = 85000
Luxe should accept the special sales order because it will increase operating income.
Incremental analysis of special order decision
Total order (12000 units)
Revenue from special order
12000*29 = 348000
Less: expenses associated with order
Variable manufacturing cost
12000*33 = 396000
Contribution margin
348000 – 396000 = -48000
Less: Additional fixed expenses associated with the order
0
Incresae (Decrease) in operating income from the special order
-48000
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