Due to the 150,000-brochure printing capacity, the special order from Abbie Jenkins should not be accepted. Fineprint would see a $250 savings due to the absence of a sales commission expense. The sales commission does not cover the loss of income from selling the brochures at $10 per 100 brochures instead of the usual $17. Fineprint Company is set up to lose $1,750 if they accepted the offer and $1,500 net, creating a negative variance. It should also consider the opportunity cost and trade-offs of neglecting orders from other customers whom are willing to pay for the regular price of the good.
With 200,000 in brochure printing capacity it would be beneficial for Fineprint to accept the offer. This offer would increase revenues by $2,500 and the profits would stay positive by accepting the offer. The fixed costs will not change but if each variable cost is divided by the former total production amount of 150,000, and multiplied by the new total production amount of 175,000, there is a $1,500 variable cost increase. As a result, they have the opportunity to earn profit of $1,000.
After conducting a breakeven analysis, we can conclude that it would be beneficial to accept the order at $6 per 100 brochures. If the variable costs are added together, the total also equals $6 and at this price, we would break-even. …show more content…
The variable cost would not change because it is manufacturing the same number of brochures that it normally would. Accepting the offer will increase revenues by $2,500 and there will be no sales commission expense. Outsourcing the order for $8 per 100 brochures will cost a total of $2,000. Raising revenues by $2,500 and expenses by $2,000 leaves FinePrint with a net increase in operating income of $500. The special order and outsourcing opportunity should only be accepted in conjunction with one
With 200,000 in brochure printing capacity it would be beneficial for Fineprint to accept the offer. This offer would increase revenues by $2,500 and the profits would stay positive by accepting the offer. The fixed costs will not change but if each variable cost is divided by the former total production amount of 150,000, and multiplied by the new total production amount of 175,000, there is a $1,500 variable cost increase. As a result, they have the opportunity to earn profit of $1,000.
After conducting a breakeven analysis, we can conclude that it would be beneficial to accept the order at $6 per 100 brochures. If the variable costs are added together, the total also equals $6 and at this price, we would break-even. …show more content…
The variable cost would not change because it is manufacturing the same number of brochures that it normally would. Accepting the offer will increase revenues by $2,500 and there will be no sales commission expense. Outsourcing the order for $8 per 100 brochures will cost a total of $2,000. Raising revenues by $2,500 and expenses by $2,000 leaves FinePrint with a net increase in operating income of $500. The special order and outsourcing opportunity should only be accepted in conjunction with one