Flip Flop Inc. (FFI) has a capacity to manufacture up to 100,000flip flops annually in Canada. For next year, expected productionand sales are 80,000 units with sale price of $10 per unit. Thefollowing costs are expected:
Production and sales | 80,000 units |
Direct materials used | 120,000 $ |
Directlabour | 80,000 |
MOH variable | 120,000 |
MOH fixed | 280,000 |
Selling expenses variable | 64,000 |
Selling expenses fixed | 56,000 |
FFI received the following offers:
1. AfricaImports (AI) would like to purchase 10,000 units for $8.70 $ saleprice per unit.
2. ChinaImports (CI) would like to purchase 20,000 units for $6.60 saleprice per unit.
There will be no selling expenses on AI and CI orders. Therewill be no impact on regular sales in Canada.
a) Calculatethe impact on FFI operating income if AI order is accepted.
b) Calculatethe impact on FFI operating income if CI order is accepted.
c) Whichoffer should FFI accept? Why?
d) Forthe offer you recommend in c) above, mention and explain twoqualitative factors FFI should consider before making the finaldecision.
