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What is the expected level of profit

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Question - Special order decision: Qualitative factors

Lindsey Smith, Inc. has a maximum production capacity of 25 000 units, and exhibits 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

Required -

a. What is the expected level of profit based on the above information?

b. Should the company accept a special order for 1000 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 3000 units at a selling price of $19, with no variable marketing expenses. What would be the impact on profit?

d. Assume that if 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?

Reference no: EM131580056

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