Question

Sampson Industries has an annual plant capacity of 67,000 ?units; current production is 50,000 units per year. At the current production? volume, the variable cost per unit is $29.00 and the fixed cost per unit is $4.00. The normal selling price of Sampson?'s product is $46.00 per unit. Sampson has been asked by Bramwall Company to fill a special order for 15,000 units of the product at a special sales price of $23.00 per unit. Bramwall is located in a foreign country where Sampson does not currently operate. Bramwall will market the units in its country under its own brand? name, so the special order is not expected to have any effect on Sampson?'s regular sales.Read the requirements:

Requirement 1. How would accepting the special order impact Sampson?'s operating? income? Should Sampson accept the special? order? Complete the following incremental analysis to determine the impact on Sampson?'s operating income if it accepts this special order. ?(Enter a? "0" for any zero balances. Use parentheses or a minus sign to indicate a decrease in contribution margin? and/or operating income from the special? order.)

Total Order

Incremental Analysis of Special Sales Order Decision

(15,000 units)

Revenue from special order

Less expenses associated with the order:

Variable manufacturing cost

Contribution margin

Less: Additional fixed expenses associated with the order

Increase (decrease) in operating income from the special order

Sampson

accept the special sales order because it will

operating income.

Requirement 2. How would your analysis change if the special order sales price were to be $44.00 per unit and Sampson would have to pay an attorney a fee of $19,000 to make sure it is complying with export laws and regulations relating to the special? order? ?(Enter a? "0" for any zero balances. Use parentheses or a minus sign to indicate a decrease in contribution margin? and/or operating income from the special? order.)

	Total Order
Incremental Analysis of Special Sales Order Decision	(15,000 units)
Revenue from special order
Less expenses associated with the order:
Variable manufacturing cost
Contribution margin
Less: Additional fixed expenses associated with the order
Increase (decrease) in operating income from the special order

Sampson

accept the special sales order because it will

operating income.

Answer 1

Req a:
Incremental analysis:
Incremental revenue (15000 units @ 23)				345000
Less: Variable manufacturing cost
	(15000 units @ 29)			435000
Cintribution margin				-90000
Less: Additionl fixed cost				0
Net decrease in income				-90000
Reject the offer
Req b:
Incremental analysis:
Incremental revenue (15000 units @ 44)				660000
Less: Variable manufacturing cost
	(15000 units @ 29)			435000
Cintribution margin				225000
Less: Additionl fixed cost				19000
Net decrease in income				206000
Accept the order