Question

per init is $4.20. The normal beling price of Raymonds product is $48.00 per urit. Raymond has been asked by Kaymond Compary is fit a specil order loe 16.000 units of the product at a specal sales price of 520.00 per urit. Kaymond b bealed in a lore gh oourtry where Raymond dens not currenty operabe. Kaymond wil markot the unts in its country unser tas ewn beand nyme, se the special order is not expected to have any ewhen fingmond regular nulen Resd the requirements Requirement t. How wouls accepting twe spedid onder impact haymonfs operaing inoome? shosid Haymond accept the specia irder? sigh to indicate a decease in contrituson margin andor cperaang income from be specol coser) h annual plant capacity of 71,000 units; current production is 51,000 units per year. At the I selling price of Raymond's product is $46.00 per unit. Raymond has been asked by Kay init. Kaymond is located in a foreign country where Raymond does not currently operate. ed to have any effect on Raymond's regular sales. Requirements 1. How would accepting the special order impact Raymond's operating income? Should Raymond accept the special order? 2. How would your analysis change if the special order sales price were to be $43.00 per unit and Raymond would have to pay an attorney a fee of $14,000 to make sure it is complying with export laws and regulations relating to the special order?

Answer 1

Accepting the special order at $20.00 per unit increases Raymond's operating income by $252,800, and at $43.00 per unit, despite an additional attorney fee of $14,000, the operating income increases by $606,800. Both scenarios suggest that Raymond should accept the special order due to the profit potential and no negative effect on regular sales.

Step-by-step explanation:

Analysis of Special Order Impact on Operating Income

To analyze how accepting the special order would impact Raymond's operating income, two scenarios with different pricing must be considered.

Firstly, for the special sales price of $20.00 per unit for 16,000 units, the total special order revenue would be 16,000 units × $20/unit = $320,000. The cost of producing these units is 16,000 units × $4.20/unit = $67,200. The operating income impact would be the difference, which is $320,000 - $67,200 = $252,800. This suggests an increase in operating income due to the special order, and Raymond should likely accept the order as there is no effect on their regular sales and excess capacity to fulfill the order.

If the special order sales price were to be $43.00 per unit with an additional attorney fee of $14,000 for export compliance, the new revenue would be 16,000 × $43/unit = $688,000. The total cost now includes both production costs and the attorney fee: ($67,200 + $14,000) = $81,200. The operating income impact would be $688,000 - $81,200 = $606,800, reflecting an even higher increase in operating income. Despite the extra costs, the higher special order price provides a strong incentive for accepting the order.