What is the minimal amount totes should charge

Assignment Help Accounting Basics

Reference no: EM132700099

Tonia and Tara have been considering expanding their operations. They have hired a cost accountant to help them analyze the cost-effectiveness of the following business opportunities and decisions:

Special Order: One of T.O.T.E.S.' customers is interested in ordering a unique Christmas tote bag.
Outsource the cutting department: The company's fabric supplier has offered to deliver the fabric precut, which would eliminate the cutting department.
Unprofitable segment: T.O.T.ES has three sales divisions: On-line, Product Representatives, and the Factory Store. In recent months, the Factory Store has shown an operating loss and management is considering closing the store.

In this lab, students will evaluate specific short-term decisions based on the current company data and make recommendations to Tonia and Tara.

SPECIAL ORDER

Historically, November is a low demand month for the T.O.T.E.S. product. Consequently, the company is seeking ways to keep the production line running closer to full capacity during the month. One of T.O.T.E.S.'s top customers has asked them to produce a special tote for December. The customer is willing to pay extra for the tote. The customer wants to order 10,000 totes and will pay all freight costs.

The customer wants red, glittery fabric and an additional snowflake patch attached to the tote. The fabric will cost an additional $0.40 per tote, the snowflake patch wholesales at $1,000 per 10,000 patches, and sewing costs will increase by $0.15 per tote. The company has the capacity to produce these 10,000 additional totes in November and no additional equipment is required.

Question 1) Why don't you need to take fixed costs into account for this special order?

Question 2) What is the minimal amount T.O.T.E.S. should charge the customer for each special tote (round to the penny)? Why?

Question 3) How much would net income change if T.O.T.E.S. accepts the special order with no increase in price per tote? (Remember T.O.T.E.S. is already a profitable company) (Round to the dollar).

Question 4) How much would net income change if they increased the price to $5.20 for each customized tote (round to the dollar)?

Reference no: EM132700099

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