Mission Electronics manufactures and sells basic DVD players for sale under vari
ID: 2421658 • Letter: M
Question
Mission Electronics manufactures and sells basic DVD players for sale under various generic store brand names. The cost of one of their models follows: Pacific Cash & Carry, a chain of low-price electronic sales and rental outlets, has asked Mission to supply them with 30,000 players for a special promotion Pacific is planning. Pacific has offered to pay Mission a unit price of $49 per DVD player. The regular selling price is $71. The special order would require some modification to the basic model. These modifications would add $5.10 per unit in material cost, $2.60 per unit in labor cost, and $1.60 in variable overhead cost. Although Mission has the capacity to produce the 30,000 units without affecting its regular production of 461,000 units, a one-time rental of special testing equipment to meet Pacific's requirements would be needed. The equipment rental would be $49,000 and would allow Mission to test up to 61,000 units. Prepare a schedule to show the impact of filling the Pacific order on Mission's profits for the year. From an operating profit perspective for the current year, should Mission accept the order? What is the minimum quantity of DVD players in the special order that would make it profitable?Explanation / Answer
Answer:a
Answer:b No
Answer:c The incremental fixed cost is$49000 (The one-time rental).
=49000/(49-47.6)
=35000 units
Particulars Status QUO 461000 units Alternative 491000 units Difference Sales revenue 32731000 34201000 1470000 higher Less: Variable costs Material 8805100 9531100 726000 higher Labor 6039100 6510100 471000 higher Variable overhead 2812100 3043100 231000 higher Total variable costs 17656300 19084300 1428000 higher Contribution margin 15074700 15116700 42000 higher Less: Fixed costs 3273100 3322100 49000 higher Operating Profit (Loss) 11801600 11794600 -7000 higher