Question

Ludolph Industries has an annual plant capacity of 72,000 units, current production is 54.000 units per year. At the current production volume, the variable cost per unit is $25.00 and the foxed cost per unit is $4.30. The normal selling price of Ludolph's product is $46.00 per unit. Ludolph has been asked by Dexter Company to fill a special order for 16.000 units of the product at a special sales price of $20.00 per unit. Dexter is located in a foreign country where Ludolph does not currently operate. Dexter wil market the units in its country under its own brand name, so the special order is not expected to have any effect on Ludolph's regular sales.

1. How would accepting the special order impact Ludolph's operating income? Less expenses associated with the order: Should Ludolph accept the special order? Variable manufacturing cost 2. How would your analysis change if the special order sales price were to be $36.00 per unit and Ludolph would have to pay an attorney a fee of $19.000 Contribution margin to make sure it is complying with export laws and regulations relating to the special order?

Answer 1

Answer:Sampson Industries

1. How would accepting the special order impact Sampson​'s operating​ income?

The acceptance of the special order will decrease Sampson's operating income by $42,000.

2. Should Sampson accept the special​ order?

No. Sampson should not accept the special order. It does not make any contribution in reducing the fixed costs. Instead, it decreases the net income. Special orders should be accepted when they add to the contribution in defraying the fixed costs, even if they do not add to the net income.

Explanation: a) Data and Calculations:

Annual plant capacity = 70,000 units

Current production = 59,000

Variable cost per unit = $26.00

Fixed cost per unit = $4.80

Normal Selling price per unit = $41

Special order = 70,000

Price of special order = $20

Incremental Analysis of Special Sales Order Decision

Total Order (7,000 units)

Revenue from special order $140,000

Less expenses associated with the order:

Less: Variable manufacturing cost 182,000

Contribution margin $(42,000)

Less: Additional fixed expenses associated with the order –

Increase (decrease) in operating income from the special order ($42,000)