Pricing of special orders, corporate social responsibility. Taylor Ltd. manufactures cosmetic 26 bags. The average selling price of the bag is $15. Each bag has variable manufacturing costs of

$7.20 per unit and applied fixed production costs of $4.60. These cosmetic bags are sold through specialty gift shops, and ‘Taylor’s salespeople earn a 10% commission for sales to these distributors.

Fixed selling and administrative costs are $150,000 per year.

One of Taylor’s sales staff has obtained a request to bid on an order for 1,500 units.

Taylor is currently operating above the breakeven point.

REQUIRED 1. Assuming that Taylor has sufficient capacity, what is the minimum selling price Taylor should charge on the order?

2. Assume that Taylor requires a target return of 12%. What is the bid price for the order?

3. Now assume that Taylor will have to incur setup costs of $7,950. What is the bid price for the order if Taylor requires a 10% return?

4. Return to the original data. Assume the cosmetic bags produced for this order will be sold through a number of retailers. The customer would like to retail the bags for $16 and donate excess profits to a local women’s shelter. The customer has proposed that Taylor supply the bags at incremental cost plus $0.25 profit per bag. The customer will take a

$0.10 profit per bag and donate the rest to the charity. Under this proposal, the salesperson would receive a $0.50 commission per unit.

i. What will be Taylor’s rate of return if it agrees to the customer’s proposal?

ii. How much money will be raised for the charity assuming all bags are sold?

iti. Should Taylor accept the customer's proposal? Discuss the financial and corpo- sci fuera rate social responsibility issues raised.

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