Business, 03.11.2020 17:20 ayoismeisalex

3. Assume the same situation as described in (2) above, except that the company expects to sell 34,000 Rets through regular channels next year. Thus, accepting the U. S. Army’s order would require giving up regular sales of 9,000 Rets. Given this new information, what is the financial advantage (disadvantage) of accepting the U. S. Army's special order?

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The original data is missing, so I looked for a similar question to fill in the blanks. I couldn't find all the information because the questions I found all referred to lower production levels. You should be able to use it an example and just change the values in your question. The question I found involved two different scenarios. In scenario 1, the company has spare capacity and in scenario 2, the company doesn't have spare capacity and must give up regular sales.

production level 30,000 units

production costs at that level:

direct materials $15 per unit = $450,000 direct labor $8 per unit = $240,000 variable manufacturing overhead $3 per unit = $90,000 fixed overhead $9 per unit = $270,000 variable selling expense $4 per unit = $120,000 fixed selling expense $6 per unit = $180,000 total costs per unit $45 = $1,350,000

sales price $50 per unit, profit $5 per unit = $150,000

fixed manufacturing overhead constant between 25,000 - 30,000 units

scenario 1:

due to a recession, sales decrease to 25,000 units:

special order for 5,000 at $42 per unit

additional costs = $10,000 for special machine

without special order with special order

total units sold 25,000 30,000

total revenue $1,250,000 $1,460,000

- variable px costs -$650,000 -$780,000

- fixed ma. overhead -$270,000 -$270,000

gross profit $330,000 $410,000

- variable selling exp. -$100,000 -$115,000

- fixed selling exp. -$180,000 -$180,000

- special machine $0 -$10,000

net profit $50,000 $105,000

profits will increase by $50,000 if the special order is accepted

scenario 2:

normal sales levels 30,000 units, Army wishes to purchase 5,000 units:

special order for 5,000 at production costs + $1.80

additional costs = $10,000 for special machine

without special order with special order

total units sold 30,000 30,000

total revenue $1,500,000 $1,434,000

- variable px costs -$780,000 -$780,000

- fixed ma. overhead -$270,000 -$270,000

gross profit $450,000 $384,000

- variable selling exp. -$120,000 -$100,000

- fixed selling exp. -$180,000 -$180,000

net profit $150,000 $104,000

profits will decrease by -$46,000 if the Army's special order is accepted

Answer from: Quest

Good it’s definitely option a

Answer from: Quest

The answer is c hope this

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3. Assume the same situation as described in (2) above, except that the company expects to sell 34,0...

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