Quality Products Produces and Sells Screen-Printed T-Shirts to Local Organisations

question 35

Essay

Quality Products produces and sells screen-printed t-shirts to local organisations.The normal sales price per shirt is $12.Due to setup costs,they only accept orders of at least 100 shirts.The setup cost per order is $40 and the variable costs per shirt are $3.Fixed overhead costs per month total $2000.Quality Products has the capacity to screen-print as many as 5000 shirts per month,but is currently producing around 3000.On 1 May,the company was approached by a local non-profit group who wishes to place a single order for 100 shirts.The non-profit group has indicated that they can only pay $5 per shirt.
Required:
A. List two qualitative factors that should be considered by Quality Products before accepting the special order.
B. What are the total relevant costs of accepting the special order?
C. From a quantitative basis, should they accept the special order? By what amount will Quality Product's net income increase or decrease if they accept the special order?

---

Definitions:

Equity Method

An accounting technique used by firms to assess the profits earned from their investments in other companies by recording such profits in proportion to their ownership stake in the invested company.

Consolidation

The process of combining the financial statements of a parent company with those of its subsidiaries to create a single set of financials.

Intra-Entity Transfer

Transactions of goods, services, or funds that occur between departments or divisions within the same company or organization.

Consolidation

The process of combining financial statements of a parent company with its subsidiaries to present as if the group of companies is a single economic entity.