Question

Alpine Luggage has a capacity to produce 360,000 suitcases per year. The company is currently producing and selling 280,000 units per year at a selling price of $395 per case. The cost of producing and selling one case follows:

Variable manufacturing costs	$	158
Fixed manufacturing costs		41
Variable selling and administrative costs		82
Fixed selling and administrative costs		21
Total costs	$	302

The company has received a special order for 20,000 suitcases at a price of $251 per case. It will not have to pay any sales commission on the special order, so the variable selling and administrative costs would be only $50 per suitcase. The special order would have no effect on total fixed costs. The company has rejected the offer based on the following computations:

Selling price per case	$	251
Variable manufacturing costs		158
Fixed manufacturing costs		41
Variable selling and administrative costs		50
Fixed selling and administrative costs		21
Net profit (loss) per case	$	(19	)

Required:

a. What is the impact on profit for the year if Alpine accepts the special order? (Enter your answers in thousands of dollars. Select option "higher" or "lower", keeping Status Quo as the base. Select "none" if there is no effect.)

	(All costs in $000) Status Quo 280,000 Units Alternative 300,000 Units Difference Sales revenue $115,620 higher Variable costs: Manufacturing higher Selling and administrative 23,960 higher Contribution margin higher Fixed costs none Operating profit higher

*************PLEASE SHOW ME HOW YOU GET EACH NUMBER IN THE BOXES. I HAVE THOSE TWO NUMBERS FILLED IN AND I DON'T REMEBER HOW I GOT THEM.*****************************************************************

Answer 1

Capacity		360,000.00		Order			20,000.00
Current utilization		280,000.00		Price			$     251.00
SP per unit		$                   395.00		Less: Manufacturing cost			$     158.00
Variable cost		$                   158.00		Variable Selling cost			$        50.00
Fixed manufacturing		$                     41.00		Profit			$        43.00
Variable selling and admin oh		$                     82.00
Fixed selling and admin oh		$                     21.00
Profit		$                     93.00
a) The impact on profit
Profit per unit will be ( 251-158-50) i.e			$                     43.00
Total number of units sold			20000
Total profit will be			$          860,000.00
		280,000	300,000	Difference
Sales Revenue		$ 110,600,000.00	$ 115,620,000.00	$    5,020,000.00
Manufacuring cost		$    44,240,000.00	$    47,400,000.00	$    3,160,000.00
(158* 280,000)				$                         -
Variable Fixed cost		$    11,480,000.00	$    11,480,000.00	$                         -
Variable selling and Admin OH		$    22,960,000.00	$    23,960,000.00	$    1,000,000.00
Fixed Oh		$       5,880,000.00	$       5,880,000.00	$                         -
Profit		$    26,040,000.00	$    26,900,000.00	$       860,000.00			Capacity               360,000.00 Order    20,000.00 Current utilization               280,000.00 Price $     251.00 SP per unit $                   395.00 Less: Manufacturing cost $     158.00 Variable cost $                   158.00 Variable Selling cost $        50.00 Fixed manufacturing $                     41.00 Profit $        43.00 Variable selling and admin oh $                     82.00 Fixed selling and admin oh $                     21.00 Profit $                     93.00 a) The impact on profit Profit per unit will be ( 251-158-50) i.e $                     43.00 Total number of units sold 20000 Total profit will be $          860,000.00                     280,000                     300,000 Difference Sales Revenue $ 110,600,000.00 $ 115,620,000.00 $    5,020,000.00 Manufacuring cost $    44,240,000.00 $    47,400,000.00 $    3,160,000.00 (158* 280,000) $                         -   Variable Fixed cost $    11,480,000.00 $    11,480,000.00 $                         -   Variable selling and Admin OH $    22,960,000.00 $    23,960,000.00 $    1,000,000.00 Fixed Oh $       5,880,000.00 $       5,880,000.00 $                         -   Profit $    26,040,000.00 $    26,900,000.00 $       860,000.00