Answer:
Net loss from accepting the order $(56,200
)
Explanation:
Note that Whispering Winds Manufacturing currently has excess capacity
Excess capacity = 81,000 - 78,200 = 2800 units
The relevant cash flows associated with this special order are as follows:
- The increase in contribution from meeting part of the offer from the excess capacity
- Opportunity cost associated with meeting the part of the special order from existing sales.
Note that the special order would be met as follows
2800 from the excess capacity
<u>2600
</u> from existing sales
<u>5400</u>
$
<em>Total contribution from special order:</em>
(70-65) × 5400 27000
<em>Contribution lost from selling 2,600</em>
<em>at a reduced price:</em>
(102-70) × 2,600 <u> (83,200)
</u>
Net loss from accepting the order (<u>56,200</u>
)
