Reference no: EM132747073

The Robles Company  makes a single product called a LAN. The company has the capacity to produce 40,000 LANS per year. Using Absorption costing, per-unit costs to produce one LAN at a 40,000-activity level follow:

Direct Labour $10

Variable Manufacturing Overhead $ 5

Fixed Manufacturing Overhead $20

Direct Materials $ 7

Variable Selling Expense $ 8

Fixed Selling Expense $ 2

Based on 40,000 units produced

The regular selling price for one LAN is $60.

Required:

Problem a. Contribution format Income Statement, in good form, for the company at the 30,000 units of Sales level.

A Special Order received at Robles from the Ginseng Company to purchase 8,000 LANS next year at 15% off the regular selling price. If this Special Order is accepted, the variable selling expense will reduce by 25%. However, Robles would have to purchase a specialized machine to engrave the Ginseng name on each LANS in the Special Order. This machine would cost $12,000, and Robles would have no use for it after the Special Order. The total fixed costs, both manufacturing and selling, are constant within the relevant range of 30,000 to 40,000 LANS per year.

Problem b. What would the impact/change be on Robles' Net Income (ignore taxes) of accepting the Special Order? (SHOW YOUR WORK.)

Problem c. Should Robles accept the Special Order from Ginseng Company? What is the reason?