Gary’s Company produces high quality shirts. Shirts must be well made because of frequent washings. Currently,...

Gary’s Company produces high quality shirts. Shirts must be well made because of frequent washings. Currently, Gary sells 10,000 shirts at $60 each with the capacity to produce 11,000 shirts. Gary is considering a special order for 1,800 shirts at a price of $40. Currently, Gary has the following costs:

Unit Costs	$200,000
Facility Costs	$140,000

If Gary accepts the special order, they will incur an additional $2 per shirt in foreign currency transaction costs. No other product or facility costs will change.

Determine the impact of the special order on Gary’s operating income.

Please show your complete work

Expert Solution

		Without special order	With special order
Sale revenue	10000*60	$ 600,000.00
	9200*60		$ 552,000.00
	1800*40		$ 72,000.00

Unit cost	10000*20	$ (200,000.00)
	11000*20		$ (220,000.00)

Facility cost		$ (140,000.00)	$ (140,000.00)
Net Income		$ 260,000.00	$ 264,000.00

Change in net income		264000-260000
Impact of special order	on net income	$ 4,000.00

ekkarill92 answered 2 years ago

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