Effect on net fixed costs

Reference no: EM1375566

Carlsbad Enterprises has a capacity to produce 380,000 computer cases per year. The company is presently producing and selling 300,000 cases per year at a selling price of $403 per case. The cost of selling and producing one case given:

Variable manufacturing costs $ 160
Fixed manufacturing costs 40
Variable selling and administrative costs 84
Fixed selling and administrative costs 18

Total costs $ 302

The company has received a special order for 40,000 cases at a price of $250 per case. Because it does not have to pay a sales commission on the special order, the selling and administrative costs could be only $50 per case. The special order would have no effect on total fixed costs. The company has rejected the offer based on the subsequent computations:

Selling price per case $ 250
Variable manufacturing costs 160
Fixed manufacturing costs 40
Variable selling and administrative costs 50
Fixed selling and administrative costs 18

Net loss per case $ (18 )
All revenues and costs in thousands of dollars
Status Quo
300,000 Units Alternative
340,000 Units Difference
Revenues $ $ $
Variable costs:
Manufacturing
Selling and administrative

Contribution margin $ $ $
Fixed costs

Operating profit $ $ $

Reference no: EM1375566

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