Rippey Ltd. manufactures a single product with the following unit costs for 5,000 units: $\begin{array}{lr}
\text { Direct materials } & £ 60 \
\text { Direct labour } & 30 \
\text { Factory overhead }(40 \% \text { variable) } & 90 \
\text { Selling expenses }(60 \% \text { variable) } & 30 \
\text { Administrative expenses }(20 \% \text { variable }) & 15 \
\text { Total per unit } & £ 225
\end{array}$ Recently, a company approached Rippey Ltd. about buying 1,000 units for £225. Currently, the models are sold to dealers for £412.50. Rippey's capacity is sufficient to produce the extra 1,000 units. No additional selling expenses would be incurred on the special order.
a.What is the profit earned by Rippey Ltd. on the original 5,000 units?
b.Should Rippey accept the special order if its goal is to maximize short-run profits? How much will income be affected?
c.Determine the minimum price Rippey would want to receive in order to increase profits by £7,500 on the special order.
d.When making a special order decision, what nonquantitative aspects of the decision should Rippey Ltd. consider?

Question

Rippey Ltd. manufactures a single product with the following unit costs for 5,000 units: $\begin{array}{lr}
\text { Direct materials } & £ 60 \
\text { Direct labour } & 30 \
\text { Factory overhead }(40 \% \text { variable) } & 90 \
\text { Selling expenses }(60 \% \text { variable) } & 30 \
\text { Administrative expenses }(20 \% \text { variable }) & 15 \
\text { Total per unit } & £ 225
\end{array}$ Recently, a company approached Rippey Ltd. about buying 1,000 units for £225. Currently, the models are sold to dealers for £412.50. Rippey's capacity is sufficient to produce the extra 1,000 units. No additional selling expenses would be incurred on the special order. 
a.What is the profit earned by Rippey Ltd. on the original 5,000 units?
b.Should Rippey accept the special order if its goal is to maximize short-run profits? How much will income be affected?
c.Determine the minimum price Rippey would want to receive in order to increase profits by £7,500 on the special order.
d.When making a special order decision, what nonquantitative aspects of the decision should Rippey Ltd. consider?

Quizplus · Accepted Answer

The Answer of Rippey Ltd. manufactures a single product with the following unit costs for 5,000 units: $\begin{array}{lr}
\text { Direct materials } & £ 60 \
\text { Direct labour } & 30 \
\text { Factory overhead }(40 \% \text { variable) } & 90 \
\text { Selling expenses }(60 \% \text { variable) } & 30 \
\text { Administrative expenses }(20 \% \text { variable }) & 15 \
\text { Total per unit } & £ 225
\end{array}$ Recently, a company approached Rippey Ltd. about buying 1,000 units for £225. Currently, the models are sold to dealers for £412.50. Rippey's capacity is sufficient to produce the extra 1,000 units. No additional selling expenses would be incurred on the special order. 
a.What is the profit earned by Rippey Ltd. on the original 5,000 units?
b.Should Rippey accept the special order if its goal is to maximize short-run profits? How much will income be affected?
c.Determine the minimum price Rippey would want to receive in order to increase profits by £7,500 on the special order.
d.When making a special order decision, what nonquantitative aspects of the decision should Rippey Ltd. consider?

Rippey Ltd Recently, a Company Approached Rippey Ltd