Loft Lake Cabinets Is Approached by Ms

question 108

Essay

Loft Lake Cabinets is approached by Ms. Jenny Zhang, a new customer, to fulfill a large one-time-only special order for a product similar to one offered to regular customers. The following per unit data apply for sales to regular customers:

Loft Lake Cabinets has excess capacity. Ms. Zhang wants the cabinets in cherry rather than oak, so direct material costs will increase by $15 per unit.
Required:
a.For Loft Lake Cabinets, what is the minimum acceptable price of this one-time-only special order?
b.Other than price, what other items should Loft Lake Cabinets consider before accepting this one-time-only special order?
c.How would the analysis differ if there was limited capacity?

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Definitions:

Carrying Value

The book value of assets and liabilities recorded on the financial statements, often differing from market value.

Extraordinary Item

Events and transactions that are distinguished by their unusual nature and by the infrequency of their occurrence, requiring separate disclosure in financial statements for clarity.

Income Statement

A financial statement that shows a company's revenues and expenses over a specific period, ultimately revealing the net profit or loss.

Internally Generated Patent

A patent developed through a company's own research and development efforts.