One Kings Lane Corporation manufactures a single product with the following unit costs for 10,000 units: $$\begin{array} { l r }
\text { Direct materials } & \$ 75 \
\text { Direct labour } & 40 \
\text { Factory overhead (40\% variable) } & 90 \
\text { Selling expenses } ( 60 \% \text { variable) } & 30 \
\text { Administrative expenses (20\% variable) } & 15 \
\text { Total per unit } & \$ 225
\end{array}$$ Recently,a company approached One Kings Lane Corporation about buying 2,000 units for $250.Currently,the models are sold to dealers for $450.One Kings Lane's capacity is sufficient to produce the extra 3,000 units.No additional selling expenses would be incurred on the special order.
Required: A. What is the profit earned by One Kings Lane on the original 10,000 units?
B. Should One Kings Lane accept the special order if its goal is to maximize short-run profits? How much will income be affected?
C. Determine the minimum price One Kings Lane would want to receive in order to increase profits by $\$ 7,500$ on the special order.
D. When making a special order decision, what qualitative aspects of the decision should One Kings Lane Corporation consider?

Question

One Kings Lane Corporation manufactures a single product with the following unit costs for 10,000 units: $$\begin{array} { l r } 
\text { Direct materials } & \$ 75 \
\text { Direct labour } & 40 \
\text { Factory overhead (40\% variable) } & 90 \
\text { Selling expenses } ( 60 \% \text { variable) } & 30 \
\text { Administrative expenses (20\% variable) } & 15 \
\text { Total per unit } & \$ 225
\end{array}$$ Recently,a company approached One Kings Lane Corporation about buying 2,000 units for $250.Currently,the models are sold to dealers for $450.One Kings Lane's capacity is sufficient to produce the extra 3,000 units.No additional selling expenses would be incurred on the special order.
Required: A. What is the profit earned by One Kings Lane on the original 10,000 units?
B. Should One Kings Lane accept the special order if its goal is to maximize short-run profits? How much will income be affected?
C. Determine the minimum price One Kings Lane would want to receive in order to increase profits by $\$ 7,500$ on the special order.
D. When making a special order decision, what qualitative aspects of the decision should One Kings Lane Corporation consider?

Quizplus · Accepted Answer

The Answer of One Kings Lane Corporation manufactures a single product with the following unit costs for 10,000 units: $$\begin{array} { l r } 
\text { Direct materials } & \$ 75 \
\text { Direct labour } & 40 \
\text { Factory overhead (40\% variable) } & 90 \
\text { Selling expenses } ( 60 \% \text { variable) } & 30 \
\text { Administrative expenses (20\% variable) } & 15 \
\text { Total per unit } & \$ 225
\end{array}$$ Recently,a company approached One Kings Lane Corporation about buying 2,000 units for $250.Currently,the models are sold to dealers for $450.One Kings Lane's capacity is sufficient to produce the extra 3,000 units.No additional selling expenses would be incurred on the special order.
Required: A. What is the profit earned by One Kings Lane on the original 10,000 units?
B. Should One Kings Lane accept the special order if its goal is to maximize short-run profits? How much will income be affected?
C. Determine the minimum price One Kings Lane would want to receive in order to increase profits by $\$ 7,500$ on the special order.
D. When making a special order decision, what qualitative aspects of the decision should One Kings Lane Corporation consider?

One Kings Lane Corporation Manufactures a Single Product with the Following