Question - Rimbaud Enterprises has developed DyeMonster, a popular children's toy in which disappearing dye is shot from a plastic gun. Rimbaud currently sells DyeMonster to small toy stores throughout the country. Because Rimbaud is too small to have its own sales force, it uses independent brokers and manufacturers' representatives who charge a 10 percent commission on sales. DyeMonster is priced at $15 each. Manufacturing costs consist of the following:
Direct materials $2.50
Direct labour 1.10
Variable overhead 1.50
Fixed overhead 5.00
Full manufacturing cost $10.10
Productive capacity is 200,000 units; currently, Rimbaud produces and sells 75,000 DyeMonsters.
Toyland, a national chain of discount toy stores, wants to buy 100,000 Dye Monsters at $8 each. Toyland wants to have its own logo imprinted on each one. Rimbaud believes this will add $.38 to direct materials cost and require the purchase of a special imprinting machine costing $50,000. The imprinting machine would be use only for this order and would be scrapped (with no salvage value) afterwards. No sales commission would be paid.
1. By how much will Rimbaud Enterprise's net income change if the order is accepted?
2. Discuss three qualitative factors that might be considered in making the decision to accept or reject the special order.