Materials
$18.40
Labor
12.40
Variable overhead
5.40
Fixed overhead ($2,905,600 per year; 454,000
6.40
units per year)
Total
$42.60
Riverside Discount Mart, a chain of low-price stores, has asked Fairmount to supply it with 23,000 backpacks for a
special promotion Riverside is planning. Riverside has offered to pay Fairmount a unit price of $46 per pack. The
regular selling price is $64. The special order would require some modification to the basic model. These modifications
would add $4.40 per unit in material cost, $1.90 per unit in labor cost, and $0.90 in variable overhead cost. Although
Fairmount has the capacity to produce the 23,000 units without affecting its regular production of 454,000 units, a one-
time rental of special testing equipment to meet Riverside's requirements would be needed. The equipment rental
would be $85,800 and would allow Fairmount to test up to 54,000 units.
Required:
a. Prepare a schedule to show the impact of filling the Riverside order on Fairmont's profits for the year.
b. Do you agree with the decision to accept the special order?
c. Considering only profit, determine the minimum quantity of backpacks in the special order that would make it
profitable.
Complete this question by entering your answers in the tabs below.
Required Required Required
A
B
C
Prepare a schedule to show the impact of filling the Riverside order on Fairmont's profits
for the year. (Enter your answers in thousands rounded to 1 decimal place. (i.e., 5,400,400
should be entered as 5,400.4). Select option "higher" or "lower", keeping Status Quo as
the base. Select "none" if there is no effect.)
(All Costs in Thousands of
Status
Quo
Dollars)
Alternative
477,000
454,000 Units
Units
Difference
Sales revenue
Less variable costs:
Materials
Labor
Variable overhead
Total variable cost
Contribution margin
Less: Fixed costs
Operating profit (loss)
