Question & Answer: Andreasen Corporation manufactures thermostats for office buildings. The following is the cost of each unit:…..

Andreasen Corporation manufactures thermostats for office buildings. The following is the cost of each unit:

Materials $ 19.10
Labor 8.10
Variable overhead 3.10
Fixed overhead ($1,121,100 per year; 111,000 units per year) 10.10
Total $ 40.40

Simpson Company has approached Andreasen with an offer to buy 9,000 thermostats at a price of $41 each. The regular price is $61. Andreasen has the capacity to produce the 9,000 additional units without affecting its current production of 111,000 units. Simpson requires that each unit use its branding, which requires a more expensive label, resulting in an additional $2.10 per unit material cost. The labor cost of affixing the label will be the same as for the current models. The Simpson order will also require a one-time rental of packaging equipment for $64,500.

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a. Prepare a schedule to show the impact of filling the Simpson order on Andreasen’s profits for the year.(Enter your answers in thousands rounded to 1 decimal place. (i.e., 5,400,400 should be entered as 5,400.4). Select option “higher” or “lower”, keeping Status Quo as the base. Select “none” if there is no effect.)

b. Do you agree with the decision to accept the special order?

Yes
No

c. Considering only profit, determine the minimum quantity of thermostats in the special order that would make it profitable, assuming capacity is available.

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