Quality Products produces and sells screen-printed t-shirts to local organizatio
ID: 2484872 • Letter: Q
Question
Quality Products produces and sells screen-printed t-shirts to local organizations. The normal sales price per shirt is $12. Due to setup costs, they only accept orders of at least 100 shirts. The setup cost per order is $40 and the variable costs per shirt are $3. Fixed overhead costs per month total $2,000. Quality Products has the capacity to screen-print as many as 5,000 shirts per month, but is currently producing around 3,000. On May 1, the company was approached by a local non-profit group who wishes to place a single order for 100 shirts. The non-profit group has indicated that they can only pay $5 per shirt.
List two qualitative factors that should be considered by Quality Products before accepting the special order?
From a quantitative basis, should they accept the special order? By what amount will Quality Product’s net income increase or decrease if they accept the special order?
List two qualitative factors that should be considered by Quality Products before accepting the special order?
From a quantitative basis, should they accept the special order? By what amount will Quality Product’s net income increase or decrease if they accept the special order?
Explanation / Answer
1 two qualitative factor that should be considered;
a. Whether or not there is excess capacity to accept the special order
b. Whether customer paying full price will become angry at the sales price the non profit group receives.
2. Relevent cost of accepting the special order;
Set up cost=40
Add variable cost@3=300
Total relevent cost=340
Per shirt relevent cost=340/100=3.40 per unit
Yes accept the special order because the special order price of $ 5.00 is greater than relevant cost of $3.40.
Net income would increase by $160(100×(5-3.40)).