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Alton Incorporated is working at full production capacity producing 26,000 units ofa unique product. Manufacturing costs per unit for the product are as follows: Direct
Alton Incorporated is working at full production capacity producing 26,000 units ofa unique product. Manufacturing costs per unit for the product are as follows: Direct materials 3 15 Direct labor 9 Manufacturing overhead 11 Total manufacturing cost per unit 3 35 The perunit manufacturing overhead cost is based on a $5 variable cost per unit and $156,000 fixed costs. The nonmanufacturing costs, all variable, are $8 per unit, and the sales price is $45 per unit. Sports Headquarters Company [SHQ has asked Alton to produce 6,500 units of a modication ofthe 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 $4 (not $8}. Alton would sell the modified product to SHC for $35 per unit Required 1a. Calculate the contribution margin for 6,500 units for both the current and special order. 1b. Should Alton produce the special order for SHC? 2. Suppose that Alton Incorporated had been working at less than full capacity to produce 21,400 units of the product when SHC made the offer. What is the minimum price per unit that Alton should accept for the modied product under these conditions
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