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AMD2018s1 Revision AMD2018s1 Revision AMD2018s1 Revision. Accounting for Managerial Decisions -22747-Final Exam Revision 2-Autumn 2018 Topic 10-Alternative choice decision making Premier Industries has been offered a deal to supply 6,000 snowboards per year to Rebel Sports at $250 per snowboard. The company\'s full cost of production is $210 per snowboard. The normal sales price for a snowboard is $310.00. Variable costs per snowboard amount to $140.00. Premier Industries will have to supply the full order quantity, or none at all. Premier\'s current sales level is 18,000 snowboards per year, and has the capacity to produce 20,000 snowboards per annum. Required: 1) Determine the impact on profitability, if the special order was to be accepted 2) Explain the effect of fixed costs on this decision situation.

Solution

Solution 1:

capacity = 20000 units

Regular sale = 18000 units

Spare capacity = 20000-18000 = 2000 units

Since special order is for 6000 units but spare capacity is only 2000 units, therefore, if special order is accepted then there be loss of 4000 units of regular sales\' contribution margin.

Therefore, if special order was accepted there be a loss of $20,000.

Solution 2:

Fixed cost is irrelevant for this decision situation as the same will not be changed upto the capacity of plant. It will continue to occur irresrespective of the deision.

Impact on profitability
Particulars	Amount
Sales revenue from special order (6000*250)	$1,500,000.00
Less: variable Costs (6000*140)	$840,000.00
Contribution margin from special order	$660,000.00
Less: Loss of contribution margin from regular sale [4000*($310-$140)]	$680,000.00
Net Income / (Loss)	-$20,000.00