Purchase Solution

The Elite Corporation: Calculate the change in total profit

Not what you're looking for?

Ask Custom Question

The Elite Corporation usually manufactures towels for the retail department store industry. It is considering whether or not to accept a special order on terms which differ from its normal pricing policy.

The firm is highly automated and has a maximum production capacity of 40,000 towels per month and its actual current production is 40,000 towels per month. Its expected cost per unit for the current month without accepting the special order is:

Direct Materials $ 6
` Direct Labor 5
Variable manufacturing overhead 2
Fixed manufacturing overhead 6
Cost per unit $ 19

The fixed manufacturing overhead cost per unit is calculated as follows: (Budget total fixed overhead per month of $ 240,000 divided by actual current production of 40,000 towels per month).

Marketing and Administrative Information:

Regular selling price per towel $ 30
Variable selling costs per towel 2
Fixed selling costs per month $300,000

Elite has the chance to sell 10,000 towels to a luxury hotel chain for a special one-time-only price of $12 per towel. Because this is a special order the Elite Corporation will avoid the variable selling costs per towel.

REQUIRED:

a) Calculate the change in total profit if the accepts the special order.

b) Are there other issues besides the change in total profit which the Elite Corporation should consider when deciding whether or not to accept the special order? Discuss.

Purchase this Solution
Solution Preview

a) Calculate the change in total profit if the accepts the special order.

Current contribution margin per unit = $30 - ($19 + $2) = $9
Current total profit = 40,000 x $9 - $300,000 = $60,000
New Profit = regular units ...

Solution provided by:
Gaurav Agarwal, MS
Education
  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
Recent Feedback
  • "Your explanation to the answers were very helpful."
  • "What does 1 and 0 means in the repair column?"
  • "Went through all of the formulas, excellent work! This really helped me!"
  • "try others as well please"
  • "Thank you, this helped a lot. I was not sure how to plug in those numbers to a formula. This was a great help. Now I have to figure out how to explain cost of capital is used in net present value analysis, and how cost of capital is used in net present value analysis. This stuff gets confusing."
Purchase this Solution
Free BrainMass Quizzes
Employee Orientation

Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.

Basics of corporate finance

These questions will test you on your knowledge of finance.

Marketing Research and Forecasting

The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.

Introduction to Finance

This quiz test introductory finance topics.

SWOT

This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.

View More Free Quizzes
Related BrainMass Solutions

  • Increase in Retained Earnings

    The increase in retained earnings = Net Income - Dividends We calculate the net income Operating Profit = 200,000 Less Interest expense 10,000 = Income before tax = 190,000 Less tax 61,250 = Net Income = 128,750 Total dividends paid are 18,750+

  • Total costs for each division and the sales price

    In the following rows, calculate the total price of the products transferred from the packaging division to the corporation and the amount under (over) the maximum transfer price of $1,075,000. Use cell references and formulas where possible.

  • Financial Ratios: Liquidity, Efficiency, Asset Turnover

    All formula and calculations are shown and explained in steps. Modern Appliances Corporation has reported its financial results for the year ended December 31, 2011.

  • Roger Corporation and Sean Corporation

    164545 Roger Corporation and Sean Corporation, two companies of roughly the same size are both involved in the manufacturer of shoe tracing devices P9-6A Roger Corporation and Sean Corporation, two companies of roughly the same size are both involved

  • Calculate TIE Ratio for The Pickett Corporation

    This problem explains how to calculate the TIE ratio. Shows the calculations in step-by-step manner for easy understanding.

  • Rate of return on common stockholders' equity

    Calculate the rate of return on common stockholders' equity for 2000,2001,and 2002. Decompose ROCE into ROA, common earnings leverage, and financial structure leverage. 4. What seem to be the reasons for the change in ROCE over the three years?

  • Managerial Economics

    Total fixed cost is 180 (remember that fixed cost does not change with respective to quantity, and this is the only term in the cost function that is independent of Q) b. Total variable cost = 5Q^2 + 10Q (Total variable cost = TC - TFC) c.

  • Wilkinson Corporation

    (c) Calculate Wilkinson Corporation's profit margin percentage (rate of return on sales). E7-6 Presented below, in alphabetical order, is information related to Wilkinson Corporation for the year 2008.

  • Disney corporation: Ratio analysis

    GROSS PROFIT MARGIN: This is a ratio that measures the amount of profit, generated by the company, on its core operations. The gross profit represents the gain (loss) generated in pursuing its main trading activity.

View More Related Solutions