Question

Mohave Corp. makes several varieties of beach umbrellas and accessories. It has been approached by a company called Lost Mine Industries about producing a special order for a custom umbrella called the Ultimate Shade (US). The special-order umbrellas with the Lost Mine Company logo would be distributed to participants at an upcoming convention sponsored by Lost Mine.

Lost Mine has offered to buy 2,200 of the US umbrellas at a price of $18 each. Mohave currently has the excess capacity necessary to accept the offer. The following information is related to the production of the US umbrella:

Direct materials	$	8.00
Direct labor		4.00
Variable manufacturing overhead		4.50
Fixed manufacturing overhead		2.50
Total cost	$	19.00
Regular sales price	$	26.00

Required:
1. Compute the incremental profit (or loss) from accepting the special order.
2. Should Mohave accept the special order?
3. Suppose that the special order had been to purchase 2,700 umbrellas for $15.00 each. Recompute the incremental profit (or loss) from accepting the special order under this scenario.
4. Assume that Mohave is operating at full capacity. Calculate the special-order price per unit at which Mohave would be indifferent between accepting or rejecting the special order.

Complete this question by entering your answers in the tabs below.

• Required 1
• Required 2
• Required 3
• Required 4

Compute the incremental profit (or loss) from accepting the special order.

Profit (or Loss)

by

Complete this question by entering your answers in the tabs below.

• Required 1
• Required 2
• Required 3
• Required 4

Should Mohave accept the special order?

	Yesradio button unchecked1 of 2 Noradio button unchecked2 of 2

• Required 1
• Required 2
• Required 3
• Required 4

Suppose that the special order had been to purchase 2,700 umbrellas for $15.00 each. Recompute the incremental profit (or loss) from accepting the special order under this scenario.

Profit (or Loss)

by

Assume that Mohave is operating at full capacity. Calculate the special-order price per unit at which Mohave would be indifferent between accepting or rejecting the special order.

Special Order Price

per Unit

Answer 1

1
	Per unit	Total 2200 units
Incremental revenue	18.00	39600
Incremental costs:
Direct materials	8.00	17600
Direct labor	4.00	8800
Variable manufacturing overhead	4.50	9900
Total Incremental costs		36300
Incremental net operating income(loss)		3300
Profit(or loss) increases by 3300
2
Yes, accept the special order
3
	Per unit	Total 2700 units
Incremental revenue	15.00	40500
Incremental costs:
Direct materials	8.00	21600
Direct labor	4.00	10800
Variable manufacturing overhead	4.50	12150
Total Incremental costs		44550
Incremental net operating income(loss)		-4050
Profit(or loss) decreases by 4050
4
Special order price equals Regular sales price
Special order price	26.00	per unit