In: Accounting
Flip Flop Inc. (FFI) has a capacity to manufacture up to 100,000 flip flops annually in Canada. For next year, expected production and sales are 80,000 units with sale price of $10 per unit. The following costs are expected:
Production and sales |
80,000 units |
Direct materials used |
120,000 $ |
Direct labour |
80,000 |
MOH variable |
120,000 |
MOH fixed |
280,000 |
Selling expenses variable |
64,000 |
Selling expenses fixed |
56,000 |
FFI received the following offers:
1. Africa Imports (AI) would like to purchase 10,000 units for $8.70 $ sale price per unit.
2. China Imports (CI) would like to purchase 20,000 units for $6.60 sale price per unit.
There will be no selling expenses on AI and CI orders. There will be no impact on regular sales in Canada.
a) Calculate the impact on FFI operating income if AI order is accepted.
b) Calculate the impact on FFI operating income if CI order is accepted.
c) Which offer should FFI accept? Why?
d) For the offer you recommend in c) above, mention and explain two qualitative factors FFI should consider before making the final decision.