1. Assume 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 and that FinePrint cannot increase capacity beyond 150,000 brochures per month.]
FinePrint should not accept the special order from Abbie Jenkins.
Since, John Johnson’s goal is to maximize profits, FinePrint would only accept the special order if it increased their profits. An analysis was conducted to identify the company’s current revenues, costs and profits in its current state, and also if the special order was accepted (See Exhibit A). At full capacity, FinePrint has revenues of $25,500, costs of $22,500 which equates to $3,000 in profit a month. By accepting the special order, the total costs are decreased by $250 because Johnson saves $1 on every 100 brochures in the special order (no sales commission). The revenues generated from the special order decrease total revenues from $25,500 to $23,750 because FinePrint will only receive $10 per 100 brochures. This means the profit from executing the special order decrease from $3,000 to $1,500. This reduction in $1,500 in profits alone would indicate that FinePrint should not accept the special order.
More importantly than short-term profits, however, is the fact that this deal does not make good business sense for FinePrint. Since FinePrint is operating at full capacity, in order to accommodate the special order, they would not be able to print 25,000 brochures for one of their current customers. Since Abbie Jenkins will not become a regular customer, FinePrint would potentially lose one of their current customers by accommodating the special order, and then they would be operating at less than full capacity in the future. The goodwill lost by accepting the special