MA72 Problem: Relevant Costing – Special Orders - Strutt Company

MA72 Problem: Relevant Costing – Special Orders - Strutt Company

 Strutt Company, which manufactures robes, has enough idle capacity available to accept a special order of 10,000 robes at $8 a robe. A predicted income statement for the year without this special order is asfollows:

 Per Unit Total 

Sales revenue $12.50 $1,250,000Manufacturing costs:Variable 6.25 625,000Fixed 1.75 175,0008.00 800,000Gross profit 4.50 450,000Marketing costs:Variable 1.80 180,000Fixed 1.45 145,0003.25 325,000Operating profit $ 1.25 $125,000If the order is accepted, variable marketing costs on the special order would be reduced by 25 percent because all of the robes would be packed and shipped in one lot. However, if the offer is accepted,management estimates that it will lose sales of 2,000 robes at regular prices.

 Required – 

What is the net gain or loss from the special order?