Question: Rowe Tool and Die (RTD) produces metal
Rowe Tool and Die (RTD) produces metal fittings as a supplier to various manufacturing firms in the area. The following is the forecasted income statement for the next quarter, which is the typical planning horizon used at RTD. RTD expects to sell 45,000 units during the quarter. RTD carries no inventories.
Fixed costs included in this income statement are $292,500 for depreciation on plant and machinery and miscellaneous factory operations and $94,500 for administrative costs. RTD has received a request for 10,000 fittings to be produced in the next quarter from Endicott Manufacturing. Endicott has never purchased from RTD, although it has been a local company for many years. Endicott has offered to pay $20 per unit. RTD can easily produce the 10,000 units with its existing capacity. Production of the 10,000 units will incur all variable manufacturing costs but no fixed manufacturing costs. No administrative costs will be incurred because of the order.
Required
a. What impact would accepting this special order have on operating profit?
b. Should RTD accept the order?
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