Fineprint Case Study

ACCT 801 – Management Accounting and Control

Spring 2015

FinePrint Company

1. If FinePrint is currently operating at full capacity of 150,000 brochures per month, should the special order from Abbie Jenkins be accepted? [In answering, assume Ernest Bradley has not yet made his offer to handle 30,000 brochures.]

The special order should not be accepted. Accepting the special order would affect FinePrint’s current business since they are already running at capacity without the additional 25,000 brochure order. Operating at full capacity, it costs FinePrint $15 to produce 100 brochures. At the usual price of $17 FinePrint makes a $2 profit on every 100 brochures (see spreadsheet). Abbie Jenkins has stated that she can only afford to pay $10 per 100 brochures without the promise of future business. Therefore, FinePrint would be printing the brochures at a loss for this special order.

1. Assume that monthly printing capacity is 200,000 brochures and that current production is 150,000 brochures per month. Costs are shown in Exhibit 1 of the case. Assume Abbie’s special order would not affect any of FinePrint’s current business. Should the special order be accepted? [In answering, assume Ernest Bradley has not yet made his offer to handle 30,000 brochures.]

The special order for 25,000 brochures should not be accepted. Despite the additional capacity to handle the order, FinePrint would be producing this order at a loss for a price of $10 per 100 brochures. The total cost to produce 100 brochures at a volume of 175,000 reduces to $13.71 from $15, however, it is still at a loss and there is no promise of additional business from Abbie to offset this loss in the future (see spreadsheet).

1. Now assume that Ernest Bradley has made his offer to handle 30,000 brochures.

1. Assuming FinePrint is operating at capacity of 150,000 brochures and there is no special order opportunity from Abbie Jenkins, should FinePrint outsource 30,000 brochures to Ernest? Why or why not?

Yes, FinePrint should outsource the production of 30,000 brochures to SmallPrint Shop. It costs FinePrint $4,500 to produce 30,000 brochures. Outsourcing to SmallPrint would cost FinePrint $2,400 at a price of $8 per 100 brochures. This result is a cost savings to FinePrint of $2,100 (see spreadsheet).