Reference no: EM133166148

Question - Parry Enterprises sells copy paper by the case to office supply stores. Each case of paper costs Parry $15. The operating costs are $30,000 per period. Each period, Parry sells approximately 15,000 cases of copy paper at $35 per case; 15,000 cases per month is Parry's max capacity. Texas Office Emporium is requesting an order of 4,000 cases of copy paper in the next period at a price of $25 per case. Since Parry has no excess capacity, accepting this order means they will be limited on the number of cases of copy paper that can be sold through normal channels.

1. How much profit (net income) will Parry Enterprises loss or gain if they this offer?

2. Assume Parry Enterprises has excess capacity of 3,000 cases. How much profit net income would they lose or gain if they accepted the offer?

Hint: Create an income (profit and loss) statement showing Parry Enterprises normal course of business. To answer question 1, copy that income statement and then adjust it to show Parry Enterprises accommodating Texas Office Emporium's request. Compare the two statements to determine how much Parry Enterprises would lose or gain by accepting the offer. Repeat the process for question 2.