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Special-Order Decision

Smooth Move Company manufactures professional paperweights and has been approached by a new customer with an offer to purchase 15,000 units at a per-unit price of $8.00. The new customer is geographically separated from Smooth Move's other customers, and existing sales will not be affected. Smooth Move normally produces 89,000 units but plans to produce and sell only 65,000 in the coming year. The normal sales price is $16 per unit. Unit cost information is as follows:

Direct materials	$3.10
Direct labor	2.75
Variable overhead	1.15
Fixed overhead	1.80
Total	$8.80

If Smooth Move accepts the order, no fixed manufacturing activities will be affected because there is sufficient excess capacity.

Required:

1. What are the alternatives for Smooth Move? Accept or reject the special order

2. CONCEPTUAL CONNECTION: Should Smooth Move accept the special order? Yes

By how much will profit increase or decrease if the order is accepted? Increase $fill in the blank .

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Keep-or-Drop Decision

Petoskey Company produces three products: Alanson, Boyne, and Conway. A segmented income statement, with amounts given in thousands, follows:

		Alanson		Boyne		Conway		Total
Sales revenue		$1,280		$185		$330		$1,795
Less: Variable expenses		1,115		45		248		1,408
Contribution margin		$165		$140		$82		$387
Less direct fixed expenses:
	Depreciation	50		15		9		74
	Salaries	95		85		100		280
Segment margin		$20		$40		$(27)		$33

Direct fixed expenses consist of depreciation and plant supervisory salaries. All depreciation on the equipment is dedicated to the product lines. None of the equipment can be sold.

Assume that each of the three products has a different supervisor whose position would be eliminated if the associated product were dropped.

Required:

Conceptual Connection: Estimate the impact on profit that would result from dropping Conway. Enter amount in full, rather than in thousands. For example, "15000" rather than "15". Increase $fill in the blank 2

Should Petoskey keep or drop Conway? Drop

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