Discussion:
Lindsey Smith Inc. has the following cost structure for the upcoming year. Sales (20,000 units @ $25) $500,000 Manufacturing costs: Variable $10 per unit Fixed $180,000 Marketing and administrative costs: Variable $5 per unit Fixed $20,000
A. What is the expected level of profit?
B. Should the company accept a special order for 1,000 units at a selling price of $20 if variable marketing expenses associated with the special order are $2 per unit? What will be the incremental profit if the order is accepted?
C. Suppose that the company received a special order for 3,000 units at selling price of $19 with no variable marketing expenses. What would be the impact on profit?
D. Assume that id the special order were accepted, all the regular customers would be aware of the price paid for the special order. Would that influence your decision? Why?