The manufacturing capacity of Ritter Rotator Company's plant facility is 60,000 rotators per quarter. Operating results for the first quarter of 2009 are as follows:Sales (36,000 units @ RM10)RM360,000Less: Variable manufacturing and selling costs: 198,000, Contribution margin RM: 162,000, Fixed costs: 99,000, Operating income RM: 63,000A, foreign distributor has offered to buy 30,000 units at RM9 per unit during the second quarter of 2009. Domestic demand is expected to remain the same as in the first quarter.
Determine the impact on operating income if Ritter accepts this order. What other considerations are relevant in this decision? Assume that Ritter decides to run an extra shift so that it can accept the foreign order without foregoing sales to its regular domestic customers. The proposed extra shift would increase capacity by 25% and increase fixed costs by RM25,000. Determine the impact on operating income if Ritter operates the extra shift and accepts the export order. What other considerations are relevant in this decision?
Your tutorial offers two computations of the incremental revenues and incremental costs of the special order. Five qualitative factors are mentioned for your review.