Scott Company Has an Annual Capacity of 18,000 Units A Foreign Wholesaler Wants to Buy 1,000 Units at a Operating

question 22

Essay

Scott Company has an annual capacity of 18,000 units. Budgeted operating results for 2011 are as follows: $\begin{array}{llr}\text { Revenues (16,000 units } @ £ 60)& & £ 960,000 \\\text { Variable costs: } & & \\\text { Manufacturing } & £ 384,000 & \\\text { Selling } & -128,000 & \underline{512,000}\\\text { Contribution margin }&&{£ 448,000}\\\\\text { Fixed costs: }\\\text { Manufacturing } & £ 160,000 & \\\text { Selling and administrative } & \underline{120,000} & \underline{280,000} \\\text { Operating income } & & £ 168,000\end{array}$ A foreign wholesaler wants to buy 1,000 units at a price of £40 per unit. All fixed costs would remain within the relevant range. Variable selling costs on the special order would be the same as variable selling costs for regular orders.
a.Determine the effect on operating income if the company produces the special order.
b.Should the company produce the special order?
c.Determine operating income if the customer had wanted a special order of 3,000 units and the company produced the special order.
d.Should the company produce the 3,000-unit special order?
e.Discuss any nonquantitative factors the company might want to consider when making the decision.

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Definitions:

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Fulfilling or realizing personal capabilities and talents, believed to be a basic drive or essential in each person.

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