Reference no: EM13878918

Carlsbad Enterprises has a capacity to produce 400,000 computer cases per year. The company is currently producing and selling 320,000 cases per year at a selling price of $80 per case. The cost of producing and selling one case follows: 

Variable manufacturing costs . . . . . . . . . . . . . . . . . . . . . . . $32
Fixed manufacturing costs . . . . . . . . . . . . . . . . . . . . . . . . . 8
Variable selling and administrative costs. . . . . . . . . . . . . . . 16
Fixed selling and administrative costs . . . . . . . . . . . . . . . . . 4
Total costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $60

The company has received a special order for 20,000 cases at a price of $50 per case. Because it does not have to pay a sales commission on the special order, the variable selling and administrative costs would be only $10 per case. The special order would have no effect on total fixed costs. The company has rejected the offer based on the following computations: 

Selling price per case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $50
Variable manufacturing costs . . . . . . . . . . . . . . . . . . . . . . . 32
Fixed manufacturing costs . . . . . . . . . . . . . . . . . . . . . . . . . 8
Variable selling and administrative costs. . . . . . . . . . . . . . . 10
Fixed selling and administrative costs . . . . . . . . . . . . . . . . . 4
Net profit (loss) per case . . . . . . . . . . . . . . . . . . . . . . . . . . . $(4)

Required :
a. What is the impact on profit for the year if Carlsbad accepts the special order? Show computations. 
b. Do you agree with the decision to reject the special order? Explain.