Marchant Industries, Which Produces Heating Blankets, Has Been Trying to Get

question 109

Essay

Marchant Industries, which produces heating blankets, has been trying to get a customer, Home Select, Inc., to purchase a special order of heating blankets in order to keep the plant busy at a time when production is expected to be slower than normal. Home Select has agreed, but only if the price is reduced to $42. Listed below are some data prepared by Marchant. The special order can be produced within available capacity, and will be made in a single batch. There are no variable marketing costs associated with the special order, but Ruby Marchant, the president of the firm, has spent $1,500 during the past month trying to get Home Select to purchase this special order.
Required: Determine the effect of the special order, if taken, on Marchant's total profit.

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Definitions:

Cost-Volume-Profit Chart

A graphical representation that shows the relationship between a company's cost, production volume, and profits.

Variable Costs

Charges that adjust based on the volume of sales or production levels.

Fixed Costs

Expenses that do not change as a function of the activity of a business, within the relevant period.

Break-Even Point

The level of sales at which total revenues equal total costs, resulting in no net loss or gain.