Question
A manufacturer will start manufacturing a new stationary bike at the beginning of 2024. The fixed overhead for the manufacturing is budgeted for $5,800,000 for
A manufacturer will start manufacturing a new stationary bike at the beginning of 2024. The fixed overhead for the manufacturing is budgeted for $5,800,000 for 2024. It is expected that the manufacturer will produce and sell 290,000 units of the bike in 2024. All variable costs for the manufacturing are estimated to be $85 per unit. The selling and administrative expenses are budgeted for $4,400,000 and of which, $1,500,000 of them are variable expenses. The stationary bikes sale price will be $195 each. (1) Prepare a budgeted income statement for the year 2024 in contribution form ignoring income taxes (assume that the stationary bike is the only product the manufacturer has). (2) A health club chain offers to buy 30,000 units of the stationary bike for $4.5 million on a one-time special order. Assume that the manufacturer has enough manufacturing capacity for the order and there will be no selling and administrative cost incurred. However, a special commission of 8% of the sales of this special order will apply. Should the manufacturer take this special order? (3) For the special order in (2), if the manufacturer only has extra capacity of 22,000 units and the additional 8,000 units need to be subcontracted for $155 each, should the manufacturer take this special order? (4) For the special order in (3), what is the highest subcontract price that the manufacturer can accept so that it will not lose money on this special order?
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