CVP application allow special discount?
Assume you are a sales representative for Sweet Tooth Candy Company. One of your customers is interested in buying some candy that will be given to the members of a high school Substance Abuse Awareness Club. The club members will be marching in a community parade and will give the candy to children who are watching the parade. Your customer has asked that you discount the normal selling price of the candy to be given to the club by 30%. You know that the contribution margin ratio of the candy, based on the regular selling price, is 40%.
Identify the pros and cons of complying with the customer's request, and state the recommendation you would make to your sales manager.
This is a "special order"? problem. Typically, the advantage of special orders is that you can fill idle capacity with a project that will give you incremental profits. They tell you that the contribution margin is 40% so you can discount by 30% and still be making incremental profits. So, here are some pros and cons:
1. Can use idle capacity to ...
Your tutorial gives you four pros and six cons and makes a recommendation.