Question

Camino Company manufactures designer to-go coffee cups. Each line of coffee cups is endorsed by a high-profile celebrity and designed with special elements selected by the celebrity. During the most recent year, Camino Company had the following operating results while operating at 85 percent (85,000 units) of its capacity:

Sales revenue	$	1,360,000
Cost of goods sold		531,250
Gross profit	$	828,750
Operating expenses		53,125
Net operating income	$	775,625

Camino’s cost of goods sold and operating expenses are 80 percent variable and 20 percent fixed. Camino has received an offer from a professional wrestling association to design a coffee cup endorsed by its biggest star and produce 14,000 cups for $10 each (total $140,000). These cups would be sold at wrestling matches throughout the United States. Acceptance of the order would require a $42,000 endorsement fee to the wrestling star, but no other increases in fixed operating expenses.

Required:
1. Complete the incremental analysis of the special order in the table provided below.
2. Should Camino accept this special order?
3. If Camino were operating at full capacity, what price would Camino require for the special order?

Answer 1