Nardin Outfitters has a capacity to produce of their special arctic tents per year. The company is currently producing and selling tents per year at a selling price of $ per tent. The cost of producing and selling one tent follows:
Variable manufacturing costs $
Fixed manufacturing costs
Variable selling and administrative costs
Fixed selling and administrative costs
Total costs $
The company has received a special order for tents at a price of $ per tent from Chipman Outdoor Center. It will not have to pay any sales commission on the special order, so the variable selling and administrative costs would be only $ per tent. 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 $
Variable manufacturing costs
Fixed manufacturing costs
Variable selling and administrative costs
Fixed selling and administrative costs
Net profit loss per case $
Required:
a What is the impact on profit for the year if Nardin Outfitters accepts the special order?
b Do you agree with the decision to reject the special order?
