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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 b \$162 × 7,500 + \$150 × 2,500 = \$1,590,000 c \$260,000 + \$60,000 + \$12,000 = \$332,000 Demo Case 2-Solution: 1. Cube Manufacturing should reject the offer and continue to make the part itself, because the total costs will be higher.

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