You are evaluating orders from two customers but can accept only one of the orders because...

You are evaluating orders from two customers but can accept only one of the orders because of your company's limited capacity. the first order is for 100 units of a product with a contribution margin ratio of 60% and a selling price of $1,000. The second order is for 500 units of a product with a contribution margin ratio of 20% and a selling price of $800. The incremental fixed costs are the same for both orders.

Which order should you accept? Why? Support your decision with calculations.

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Expert Solution

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Please find below the answer
Statementshowing Computations
Paticulars	First Order	Second Order
No of units	100.00	500.00
Selling price per unit	1,000.00	800.00
Sales Revenues	100,000.00	400,000.00
Contribution First order = 100,000.60 Second order = 400,000.20	60,000.00	80,000.00

You should accept second order as contribution is higher for second order. If the company has sufficient capacity then both the orderss should be accepted as both of them have positive contribution

ekkarill92 answered 1 year ago

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