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butalik [34]
3 years ago
5

Gary’s Company produces high quality shirts. Shirts must be well made because of frequent washings. Currently, Gary sells 10,000

shirts at $60 each with the capacity to produce 11,000 shirts. Gary is considering a special order for 1,800 shirts at a price of $40. Currently, Gary has the following costs:Unit Costs $200,000Facility Costs $140,000If Gary accepts the special order, they will incur an additional $2 per shirt in foreign currency transaction costs. No other product or facility costs will change. Determine the impact of the special order on Gary’s operating income.
Business
1 answer:
grin007 [14]3 years ago
6 0

Answer:

Unless the capacity is expanded or some of the production gets outsource, the offer is not convenient.

Explanation:

Giving the following information:

Currently, Gary sells 10,000 shirts at $60 each with the capacity to produce 11,000 shirts. Gary is considering a special order for 1,800 shirts for $40.

Gary has the following costs:

Unit Costs $200,000

Facility Costs $140,000

If Gary accepts the special order, they will incur an additional $2 per shirt in foreign currency transaction costs.

Because it is a special offer and there is unused capacity, we will not have into account the fixed costs.

variable cost per unit= (200,000/10,000) + 2= $22

Effect on income= (40 - 22)*1,800= $32,400

We have to take into account the loss of not selling 1,000 units.

Effect on income= 1,000*40= $40,000

Total effect= 32,400 - 40,000= $7,600

Unless the capacity is expanded or some of the production gets outsource, the offer is not convenient.

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Answer:

Option (b) is correct.

Explanation:

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A manufacturer of washing machines has expanded its plant and created excess capacity, just as the general economy takes a downt
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<h3>What is meant by an economic downturn?</h3>

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