Scott Company has an annual capacity of 18,000 units. Budgeted operating results for 2004 are as follows: (15 marks)
Revenues (16,000 units @ $60) $960,000
Selling 128,000 512,000
Contribution margin $448,000
Selling and administrative 120,000 280,000
Operating income $168,000
A foreign wholesaler wants to buy 1,000 units at a price of $40 per unit. All fixed costs would remain within the relevant range. Variable selling costs on the special order would be the same as variable selling costs for regular orders.
a. Determine the effect on operating income if the company produces the special order.
b. Should the company produce the special order?
c. Determine operating income if the customer had wanted a special order of 3,000 units and the company produced the special order.
d. Should the company produce the 3,000-unit special order?
e. Discuss any nonquantitative factors the company might want to consider when making the decision.