Reference no: EM132421192
Problem: Adelaide Ltd manufactures kettles. For the first eight months of the current year, the company reported the following financial results while operating at 75 per cent of capacity:
Sales (350,000 units) $4,375,000
Cost of goods sold 2,500,000
Gross profit $1,875,000
Operating expenses 875,000
Net profit $1,000,000
Cost of goods sold is comprised of 70 per cent variable costs and 30 per cent fixed costs; operating expenses are also 70 per cent variable and 30 per cent fixed.
In September, Adelaide Ltd receives a special order for 15,000 kettles from a company in Hong Kong. The maximum the company is willing to pay is $7.50 per kettle. If the order is accepted, Adelaide Ltd would incur $3,000 of shipping expenses, but no change in operating fixed costs.
Requirements
(a) Should Adelaide accept the special order? Justify your answer.
(b) What qualitative factors may Adelaide need to consider in reaching a decision?
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