Globe Manufacturing Company Has Just Obtained a Request for a Special

question 59

Essay

Globe Manufacturing Company has just obtained a request for a special order of 12,000 units to be shipped at the end of the current year at a discount price of $7.00 each. The company has a production capacity of 90,000 units per year. At present, Globe is only selling 80,000 units per year through regular channels at a selling price of $11.00 each. Globe's per unit costs at an 80,000 unit level of production and sales are as follows: Variable selling and administrative expense will drop to $0.30 per unit on the special order units. The special order has to be taken in its entirety. This means that by accepting the special order, Globe will be forced to not sell 2,000 units to its regular customers.
Required:
If Globe accepts this special order, by what amount will its net operating income increase or decrease? SHOW YOUR COMPUTATIONS.

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Definitions:

Critical Thinking

The objective analysis and evaluation of an issue in order to form a judgment.

Reality Testing

The process of objectively evaluating the truth of a belief or perception to distinguish between what is real and what may be a product of fantasy or bias.

Political Behavior

Activities within an organization that are aimed at improving individual or group status and power, often involving tactical influence, alliances, or manipulation.

Competence

The ability of an individual or organization to effectively perform or carry out a specific task or role.