Question

Summer Corp produces high end swimming pool floats. The Floater 5000 sells for $300. Summer produces...

Summer Corp produces high end swimming pool floats. The Floater 5000 sells for $300. Summer produces and sells 6,000 of them per year. Cost data are as follows:

Variable manufacturing

$120

per unit

Variable selling and administrative

$19

per unit

Fixed manufacturing

$390,000

per year

Fixed selling and administrative

$175,000

per year



Pools R Us has asked Summer Corp to produce 50 units at a special price of $240 per unit for a one-time only sale. The sale will not negatively impact the company's regular sales activities and will require the normal variable manufacturing costs and selling and administrative costs.

There is plenty of excess capacity and the deal will not impact fixed costs.

Create a Differential Analysis of a Special Pricing Decision showing the expected increase or decrease in operating income if this order is accepted. You can see a sample analysis in Chapter 25, Exhibit 25-5.

This assignment is worth 10 points overall, 5 points for proper setup, 2 points for correct final number answer, 1 point for your decision (Accept or Reject the special pricing request), 2 points for working formulas within the cells.

When your file is ready to submit, click on "Graded: Learning Unit 4, Ch 25 Special Pricing Decision" above. In the next screen, attach your file.

This assignment must be submitted in EXCEL with working formulas in at least two cells.

Homework Answers

Answer #1
Differential analysis
Reject Accept Effect on Income
Sales revenue 15,00,000 1512000 12000
Cost
variable Manufacturing cost 6,00,000 606000 -6000
Variable Selling admin cost 95,000 95950 -950
Fixed manufacturing cost 3,90,000 390000 0
Fixed Selling admin cost 1,75,000 175000 0
Total cost 12,60,000 1266950 -6950
Net Income 2,40,000 245050 5050
Net Financial advantage of Accepting the special order: $ 5050
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