Demo-case-4-solution

Demo-case-4-solution - Demo Case 1-Solution 1 The special...

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Demo Case 1-Solution: 1. The special order should be accepted, because it generates the additional profit of $10,500. Status Quo (Do not accept) Alternative (Accept) Difference Sales $1,760,000 $2,007,500 $247,500 Variable costs (1,296,000) (1,521,000) (225,000) Contribution margin $464,000 $486,500 $22,500 Fixed costs (320,000) (332,000) (12,000) Operating profit $144,000 $154,500 $10,500 2. The special order should be rejected because of the net loss of $3,500 relative to the status quo. By accepting the special order, Nationwide can only sell 7,500 windows at the regular price of $220 each. The rest (up to its capacity limit of 10,000 windows per year) will be delivered to the contractor for $165 each. Status Quo (Do not accept) Alternative (Accept) Difference Sales $1,760,000 $2,062,500 a $302,500 Variable costs (1,296,000) (1,590,000) b (294,000) Contribution margin $464,000 $472,500 $8,500 Fixed costs (320,000) (332,000) c (12,000) Operating profit $144,000 $140,500 $(3,500) a $220 × 7,500 + $165 × 2,500 = $2,062,500
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This note was uploaded on 10/29/2009 for the course ACC 066 taught by Professor Kwak during the Spring '08 term at DeAnza College.

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Demo-case-4-solution - Demo Case 1-Solution 1 The special...

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