Rippey Ltd. manufactures a single product with the following unit costs for 5,000 units:
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.
Required:

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:
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.
Required:
  
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:
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.
Required:
  
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?