Lispell Co. manufactures in-line skates that sell for $128 a pair. The company is currently operating at capacity, 2,000 pairs. A special order from a foreign distributor for 400 pairs of skates at $120 a pair has just been received. In order to accept this order, Lispell Co. would have to give up 400 pairs of its regular sales. However, there would be no sales commission incurred on the order. Shown below are the current costs of operation:

a. What costs are relevant to this decision?
b. Provide an incremental analysis to be used in determining whether or not the order should be accepted.
c. Are there any qualitative considerations that need to be addressed? Explain.

Question

Lispell Co. manufactures in-line skates that sell for $128 a pair. The company is currently operating at capacity, 2,000 pairs. A special order from a foreign distributor for 400 pairs of skates at $120 a pair has just been received. In order to accept this order, Lispell Co. would have to give up 400 pairs of its regular sales. However, there would be no sales commission incurred on the order. Shown below are the current costs of operation:
  
a. What costs are relevant to this decision?
b. Provide an incremental analysis to be used in determining whether or not the order should be accepted.
c. Are there any qualitative considerations that need to be addressed? Explain.

Quizplus · Accepted Answer

The Answer of Lispell Co. manufactures in-line skates that sell for $128 a pair. The company is currently operating at capacity, 2,000 pairs. A special order from a foreign distributor for 400 pairs of skates at $120 a pair has just been received. In order to accept this order, Lispell Co. would have to give up 400 pairs of its regular sales. However, there would be no sales commission incurred on the order. Shown below are the current costs of operation:
  
a. What costs are relevant to this decision?
b. Provide an incremental analysis to be used in determining whether or not the order should be accepted.
c. Are there any qualitative considerations that need to be addressed? Explain.