Answer:
Andreasen Corporation
Special Order by Simpson Company:
a. Status quo Alternative
100,000 units 107,500 units Total Difference
($'000) ($'000) ($'000) ($'000)
Sales Revenue $10,000 $450 $10,450 $450 Higher
Total Variable cost 5,400 420 5,820 420 Higher
Contribution $4,600 $30 $4,630 30 Higher
Fixed costs 1,800 20 1,820 20 Higher
Operating profit $2,800 $10 $2,810 10 Higher
b. No.
d. Contribution per unit = $4 ($30,000/7,500)
Fixed cost = $20,000
Fixed cost Plus Profit = $30,000
Minimum quantity to make it profitable = $30,000/$4 = 7,500 thermostats
However, this profit level is far below the normal production profit of 28% on sales revenue.
Explanation:
a) Data and Calculations:
Materials $ 36.00
Labor 14.00
Variable overhead 4.00
Total variable cost = $54
Fixed overhead ($1,800,000 per year; 100,000 units per year) 18.00
Total $ 72.00
Selling price = $100
Special order = 7,500 thermostats
Price of special order = $60
Relevant costs of special order:
Materials $ 36.00
Labor 14.00
Variable overhead 4.00
Additional material = $2
Unit variable cost = $56
Total variable cost = $420,000
Packaging equipment 20,000
Total relevant cost = $440,000
Sales Revenue = $450,000
Profit from special order = $10,000
