Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Alton Inc. is working at full production capacity producing 23,000 units of a unique product. Manufacturing costs per unit for the product are as follows:

Alton Inc. is working at full production capacity producing 23,000 units of a unique product. Manufacturing costs per unit for the product are as follows: Direct materials $ 8 Direct labor 7 Manufacturing overhead 9 Total manufacturing cost per unit $ 24 The per-unit manufacturing overhead cost is based on a $5 variable cost per unit and $92,000 fixed costs. The nonmanufacturing costs, all variable, are $10 per unit, and the sales price is $44 per unit. Sports Headquarters Company (SHC) has asked Alton to produce 5,600 units of a modification of the new product. This modification would require the same manufacturing processes. However, because of the nature of the proposed sale, the estimated nonmanufacturing costs per unit are only $5 (not $10). Alton would sell the modified product to SHC for $34 per unit.

Required

1-a. Calculate the contribution margin for 5,600 units for both the current and special order.

1-b. Should Alton produce the special order for SHC?

2. Suppose that Alton Inc. had been working at less than full capacity to produce 18,700 units of the product when SHC made the offer. What is the minimum price per unit that Alton should accept for the modified product under these conditions?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Management Accounting Text Problems And Cases

Authors: M Y Khan, P K Jain

6th Edition

125902668X, 978-1259026683

More Books

Students also viewed these Accounting questions

Question

1. Discuss the main incentives for individual employees.pg 87

Answered: 1 week ago