Reference no: EM132738532

Loft Lake Cabinets is approached by Ms. Jenny Zhang, a new customer, to fulfill a large one-time-only special order of 200 units at $190 each for a product similar to one offered to regular customers. Loft Lake's production capacity is 2,000 units.

The following per unit data apply for sales to regular customers:

Direct materials $50.00
Direct labor 65
Variable manufacturing support 25.00
Fixed manufacturing support 30
Variable marketing cost 10.00
Fixed marketing cost 15
Total costs 180.00 per unit

Selling price $280.00 per unit

• Ms. Zhang wants the cabinets in cherry rather than oak, so direct material costs will increase by $15 per unit. Special order will not incur variable marketing cost.

Problem 1: If Loft Lake Cabinets currently sells 1,800 units to regular customers, how much is Loft Lake's change in operating income if the special order is accepted?

Problem 2: If Loft Lake Cabinets currently sells 2,000 units to regular customers. For Loft Lake Cabinets, what is the minimum acceptable selling price of this one-time-only special order?