Accounting: What the Numbers Mean 11th Edition by Wayne McManus,Daniel Viele,David Marshall

Exercise 16

CVP application-allow special discount? Assume you are a sales representative for Sweet Tooth Candy Company. One of your customers is interested in buying some candy that will be given to the members of a high school Substance Abuse Awareness Club. The club members will be marching in a community parade and will give the candy to children who are watching the parade. Your customer has asked that you discount the normal selling price of the candy to be given to the club by 30%. You know that the contribution margin ratio of the candy, based on the regular selling price, is 40%.
Required:
Identify the pros and cons of complying with the customer's request, and state the recommendation you would make to your sales manager.