KitUup makes children’s clothing. The company has been approached by a department store chain to make a special order of 10,000 children’s shirts displaying a well-known cartoon character. The cost accountant has prepared the following estimate in accordance with management’s policy of absorption cost pricing, plus a 20% mark-up.

Additionally, we are told that the plant is currently working at 60% of capacity and that KitUup would incur £5,000 in selling and administration costs as a result of the special order.

Required

(a) What is the minimum selling price KitUup should consider when negotiating for the special order of 10,000 shirts?

(b) How would your answer change if the company were currently operating at capacity?

(c) What other factors might the company want to consider when making this decision?

Transcribed Image Text:

Cost per hundred Manufacturing costs: cloth 200 buttons franchise fee 30 50 direct labour 80 variable overhead 90 fixed overhead 40 selling and administration 10 Total costs 500 Mark-up 100 Suggested selling price 600