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Fineprint Computation

This document analyzes three alternatives for a company considering a special order of 25,000 brochures at $10 per 100 brochures. Alternative 1 is to not accept the special order. Alternative 2 is to accept the order and use remaining capacity for normal production. Alternative 3 is similar to Alternative 2 but also considers additional potential orders. The document compares the costs, revenues, contribution margins and operating incomes for each alternative. Key factors like volume, selling price, variable and fixed costs are outlined to calculate the financial impacts.

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11 views

Fineprint Computation

This document analyzes three alternatives for a company considering a special order of 25,000 brochures at $10 per 100 brochures. Alternative 1 is to not accept the special order. Alternative 2 is to accept the order and use remaining capacity for normal production. Alternative 3 is similar to Alternative 2 but also considers additional potential orders. The document compares the costs, revenues, contribution margins and operating incomes for each alternative. Key factors like volume, selling price, variable and fixed costs are outlined to calculate the financial impacts.

Uploaded by

ettmba
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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ANALYSIS

Alternative 1

Normal Production per Month

Cost per
100 Brochures

Sales

Accept the order of 25,000 brochures @ $10 per 100 brochures

Monthly costs at
150,000 volume

Normal
125,000 volume @ $17

Order
25,000 volume@ $10

25,500.00

21,250.00

2,500.00

4.00 $
1.00
2.00
1.00
2.25

6,000.00
1,500.00
3,000.00
1,500.00
3,375.00

5,000.00
1,250.00
2,500.00
1,250.00
2,812.50

1,000.00
250.00
500.00
250.00
562.50

10.25 $

15,375.00

12,812.50

2,562.50

Manufacturing Costs
Direct material-variable
Direct labor-variable
Direct labor-fixed
Manufacturing overhead-variable
Manufacturing overhead-fixed
Total manufacturing costs
Nonmanufacturing costs
Sales-variable
Sales-fixed
Corporate-fixed
Total nonmanufacturing costs
Total Costs
Net Revenue

1.00
1.25
2.50
$
$

1,500.00
1,875.00
3,750.00

1,250.00
1,562.50
3,125.00

312.50
625.00

4.75 $
15.00 $

7,125.00
22,500.00

$
$

5,937.50
18,750.00

$
$

3,000.00

2,500.00

$(1,000.00)
1,500.00

Percentage of decrease in Revenue

937.50
3,500.00

50%

Notes:

lternative 1

Alternative 2

ochures @ $10 per 100 brochures

Accept the order of 25,000 brochures @ $10 per 100 brochures through Outsourcing

Normal
150,000 volume

00 volume@ $10

Bradley Offer
25,000 volume@ $2
Opportunity Cost

25,500.00

6,000.00
1,500.00
3,000.00
1,500.00
3,375.00

15,375.00

1,500.00
1,875.00
3,750.00

$
$

7,125.00
22,500.00

$
$

3,000.00

Percentage of increase in Revenue

500.00

500.00
3,500.00
17%

Alternative 3

Accept the order of 25,000 brochures @ $10 per 100 brochures through Outsourcing

Normal
150,000 volume

Abbie Jerkins Orders


Other orders
Bradley Offer
25,000 volume@ $2
5000 volume @ $9
Opportunity Cost

25,500.00 $

6,000.00 $
1,500.00
3,000.00
1,500.00
3,375.00

15,375.00 $

1,500.00
1,875.00
3,750.00

500.00

450.00

$
$

7,125.00 $
22,500.00 $

3,000.00

Percentage of increase in Revenue

500.00

450.00
3,950.00
32%

ANALYSIS
Manufacturing Costs
Direct material-variable
Direct labor-variable
Direct labor-fixed
Manufacturing overhead-variable
Manufacturing overhead-fixed
TOTAL
Volume Capacity

$
$
$
$
$
$

6,000.00
1,500.00
3,000.00
1,500.00
3,375.00
15,375.00

Sales-variable
Sales-fixed
Corporate-fixed

$
$
$

1,500.00
1,875.00
3,750.00

TOTAL
Volume Capacity

7,125.00

Variable Manufacturing cost per 100 brochure


Fixed Manufacturing cost per 100 brochure
Nonmanufacturing costs

Variable Non-Manufacturing cost per 100 brochure


Fixed Non-Manufacturing cost per 100 brochure

Variable
$
$
$
$

per 100 brochure

6,000.00
1,500.00

$
$
$
1,500.00 $
$
9,000.00
150,000

Fixed

4.00
1.00
- $
1.00
- $
$

per 100 brochure

$
$
3,000.00 $
$
3,375.00 $
6,375.00
###

2.00
2.25

6.00
4.25

1,500.00

1,500.00
150,000

$
$
$

1.00
- $
- $
$

$
1,875.00 $
3,750.00 $

1.25
2.50

5,625.00
###

1.00
$

3.75

Alternative 1
Do not accept the special order of 25,000 brochures, instead use the 25,000 capacity to produce n
Number of brochures

100

150,000

Sales
Variable manufacturing costs
Variable nonmanufacturing costs

17.00
6.00
1.00

25,500.00
9,000.00
1,500.00

Contribution Margin

10.00

15,000.00

4.25
3.75

6,375.00
5,625.00

2.00

3,000.00

Fixed manufacturing costs


Fixed nonmanufacturing costs

Operating Income

Alternative 2
Accept the 25,000 special orders and use remaining capacity of 125,000 to produce normal orders
Number of brochures
Selling price

100

Sales
Variable manufacturing costs
Variable nonmanufacturing costs
Contribution Margin
Fixed manufacturing costs
Fixed nonmanufacturing costs
Operating Income

125,000
17

6.00
1.00

21,250.00
7,500.00
1,250.00

10.00

12,500.00

4.25
3.75

5,312.50
4,687.50

2.00

2,500.00

e the 25,000 capacity to produce normal orders

125,000 to produce normal orders


25,000
10
2,500.00
1,500.00
250.00
750.00
1,062.50
937.50
(1,250.00)

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