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Huffman Inc. makes and sells state of the art electronics products. One of its segments produces The Math Machine, an inexpensive calculator. The company’s chief accountant recently prepared the following income statement showing annual revenues and expenses associated with the segment’s operating activities. The relevant range for the production and sale of the calculators is between 30,000 and 60,000 units per year. Don't use plagiarized sources. Get Your Custom Essay on
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| Revenue (40,000 units Af— $8) | $ | 320,000 | |
| Unit level variable costs | |||
| Materials cost (40,000 Af— $2) | (80,000 | ) | |
| Labor cost (40,000 Af— $1) | (40,000 | ) | |
| Manufacturing overhead (40,000 Af— $0.50) | (20,000 | ) | |
| Shipping and handling (40,000 Af— $0.25) | (10,000 | ) | |
| Sales commissions (40,000 Af— $1) | (40,000 | ) | |
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| Contribution margin | 130,000 | ||
| Fixed expenses | |||
| Advertising costs | (20,000 | ) | |
| Salary of production supervisor | (60,000 | ||
| Allocated companywide facility level expenses | (80,000 | ) | |
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| Net loss | $ | (30,000 | ) |
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| (Consider each of the requirements independently.) |
A large discount store has approached the owner of Huffman about buying 5,000 calculators. It would replace The Math Machine’s label with its own logo to avoid affecting Huffman’s existing customers. Because the offer was made directly to the owner, no sales commissions on the transaction would be involved, but the discount store is willing to pay only $4.50 per calculator. Based on quantitative factors alone, should Huffman accept the special order? Support your answer with appropriate computations. Specifically, by what amount would the special order increase or decrease profitability?
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