Problem Set A D. Lawrance designs and manufactures fashionable men's clothing. For the coming year, the com- pany has scheduled production of 40,000 suede jackets. Budgeted costs for this product are as follows. Unit Costs (40,000 units) Total $50 $2,000,000 20 800,000 Variable manufacturing costs Variable selling expenses. 10 400,000 Fixed manufacturing costs 200,000 Fixed operating expenses $85 $3,400,000 Total costs and expenses The management of D. Lawrance is considering a special order from Discount Apparel for an additional 10,000 jackets. These jackets would carry the Discount Apparel label, rather than the D Lawrance label. In all other respects, they would be identical to the regular D. Lawrance jackets. Although D. Lawrance regularly sells its jackets to retail stores at a price of $150 each, Dis- count Apparel has offered to pay only $80 per jacket. However, because no sales commissions would be involved with this special order, D. Lawrance will incur variable selling expenses of only $5 per unit on these sales, rather than the $20 it normally incurs. Accepting the order would cause no change in the company's fixed manufacturing costs or fixed operating costs. D. Lawrance has enough plant capacity to produce 55,000 jackets per year. Instructions a. Using incremental revenue and incremental costs, compute the expected effect of accepting this special order on D. Lawrance's operating income. b. Briefly discuss any other factors that you believe D. Lawrance's management should con sider in deciding whether to accept the special order. Include nonfinancial as well as financia. considerations.
Problem Set A D. Lawrance designs and manufactures fashionable men's clothing. For the coming year, the com- pany has scheduled production of 40,000 suede jackets. Budgeted costs for this product are as follows. Unit Costs (40,000 units) Total $50 $2,000,000 20 800,000 Variable manufacturing costs Variable selling expenses. 10 400,000 Fixed manufacturing costs 200,000 Fixed operating expenses $85 $3,400,000 Total costs and expenses The management of D. Lawrance is considering a special order from Discount Apparel for an additional 10,000 jackets. These jackets would carry the Discount Apparel label, rather than the D Lawrance label. In all other respects, they would be identical to the regular D. Lawrance jackets. Although D. Lawrance regularly sells its jackets to retail stores at a price of $150 each, Dis- count Apparel has offered to pay only $80 per jacket. However, because no sales commissions would be involved with this special order, D. Lawrance will incur variable selling expenses of only $5 per unit on these sales, rather than the $20 it normally incurs. Accepting the order would cause no change in the company's fixed manufacturing costs or fixed operating costs. D. Lawrance has enough plant capacity to produce 55,000 jackets per year. Instructions a. Using incremental revenue and incremental costs, compute the expected effect of accepting this special order on D. Lawrance's operating income. b. Briefly discuss any other factors that you believe D. Lawrance's management should con sider in deciding whether to accept the special order. Include nonfinancial as well as financia. considerations.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
21.1A
Transcribed Image Text:connect
Chapter 21 Incremental Analysis
Problem Set A
L021-2, LO21-3,
follows.
Unit Costs
M 21.1A
(40,000 units)
Total
ga Special Order
$50
$2,000,000
Variable manufacturing costs
20
800,000
Variable selling expenses
10
400,000
Fixed manufacturing costs
200,000
Fixed operating expenses
$3,400,000
$85
Total costs and expenses
LO21
LO21
The management of D. Lawrance is considering a special order from Discount Apparel for an
additional 10,000 jackets. These jackets would carry the Discount Apparel label, rather than the D
Lawrance label. In all other respects, they would be identical to the regular D. Lawrance jackets.
Although D. Lawrance regularly sells its jackets to retail stores at a price of $150 each, Dis-
count Apparel has offered to pay only $80 per jacket. However, because no sales commissions
would be involved with this special order, D. Lawrance will incur variable selling expenses of only
$5 per unit on these sales, rather than the $20 it normally incurs. Accepting the order would cause
no change in the company's fixed manufacturing costs or fixed operating costs. D. Lawrance has
enough plant capacity to produce 55,000 jackets per year.
PRC
Mak
Instructions
a. Using incremental revenue and incremental costs, compute the expected effect of accepting
this special order on D. Lawrance's operating income.
b. Briefly discuss any other factors that you believe D. Lawrance's management should co
Sider in deciding whether to accept the special order. Include nonfinancial as well as financial
considerations.
pany has of suede jackets. costs for this are as
D. designs and men's For year, the com-
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