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After receiving the explanations offered in Requirement 2 and 3, Jodie said, Forget that I...

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Accounting

After receiving the explanations offered in Requirement 2 and 3, Jodie said, Forget that I had the Target

order. I had an even bigger order from Lands End. It was for 500,000 units and would have filled the

plant completely. I told my sister Id settle for no commission. There would have been no selling and

administrative costs whatsoever because Lands End would pay for the shipping and would not get any

advertising allowances.

Lands End offered $8.70 per unit. Our fixed manufacturing costs would have been spread over 2.5

million instead of 2 million units. Wouldnt it have advantageous to accept the order? Our old fixed

manufacturing costs were $2.00 per unit. The added volume would reduce the cost more than our loss

on our variable costs per unit. Am I correct? What would have been the impact on total operating

income if we had accepted the order?

imageimage

Heartland Watches Contribution Format Income Statement For the Year Ended December 31, 2016 Sales $ 40,000,000.00 Variable Manufacturing Cost $ 18,000,000.00 Total Variable Expenses Contribution Margin Fixed Expenses $4,000,000.00 $ 6,000,000.00 $10,000,000.00 $3,000,000.00 Fixed Manufactoring Overhead Fixed Selling& Administrative Expense Total Fixed Expenses Net Operating Income

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