A corporation has the following budgeted operating results for 2012:
|
|
| Revenues (10,000 units at $50) |
|
500,000 |
| Variable costs: |
|
|
| Manufacturing |
200,000 |
|
| Selling |
60,000 |
260,000 |
| Contribution margin |
|
240,000 |
| Fixed costs: |
|
|
| Manufacturing |
80,000 |
|
| Selling |
50,000 |
130,000 |
| Operating income |
|
110,000 |
|
A wholesaler wants to buy 1,100 units at a price of $30 per unit. All fixed costs would remain within the relevant range (up to capacity). There would be no variable selling costs on the special order units.The corporation has a capacity to produce 12,000 per year.
a. Should the company produce the special order? If the corporation accepts the special order, they must produce and sell the entire 1,100 units for $30 per unit.
b. Should the company produce a special order for 3,000 units for $30 per unit? If the corporation accepts the special order, they must produce and sell the entire 3,000 units for $30.
c. Would the answer to "b." be the same if you could expand capacity to 14,000 units by leasing some equipment for $8,000? If the corporation accepts the special order, they must produce and sell the entire 3,000 units for $30.