Question

Cinrich is a service company owned by Paul White that will “plant” plastic flamingos on a special day in people’s yards to help celebrate and advertise birthdays, births, anniversaries, and other important milestones. The average delivery is priced at $75. The costs of providing 775 deliveries in the past year were:

Direct labor		$	13,175
Variable overhead			7,750
Fixed overhead (advertising costs, phone service, insurance)			15,100
Total cost		$	36,025

At the start of the current year, White received a phone call from the local Rotary club. The club would like to contract with Cinrich to have flamingos delivered to the yards of each of its members in the upcoming year; this contract would provide an additional 171 deliveries for Cinrich. However, the club wants a special price since it is ordering a large number of deliveries; it has said it would like a price of $58 per delivery. Cinrich can make up to 1,000 deliveries per year without incurring additional fixed costs.

What will be the affect on profit if White accepts the special order? (Enter decrease in profit using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Profit will select an option (increase/ decrease) by ($enter a dollar amount) per year  per year.

Answer 1

Revenue from special order	9,918	(171*58)
Less: Cost associated with special order
Dircet labor	2,907	(13175/775*171)
variable overhead	1,710	(7750/775*171)
Increase in profit due to acceptance of offer	5,301