Question
Barnes Corporation has been approached by a national distributor of office products to supply their warehouse staff with 10,000 rollerblades to help them navigate their
Barnes Corporation has been approached by a national distributor of office products to supply their warehouse staff with 10,000 rollerblades to help them navigate their way around the warehouse more efficiently. Current price and cost information per unit for the rollerblades is as follows:
Sales price: | $43.50 |
Direct materials: | $14.52 |
Direct labor: | $6.87 |
Variable overhead: | $5.15 |
Fixed overhead: | $7.45 |
.
After reviewing a previous minimum bid from Barnes, the national distributor has come back with a request for Barnes to make modifications to the standard rollerblade that they currently sell. Specifically, they would like the color of the roller blades to be in their own corporate colors, and they would like their corporate logo stencilled onto each roller blade.
The product line manager has estimated that this will increase the costs of production in a couple of ways. First, it will be necessary to dye the leather in the appropriate colors. This will increase the direct materials per unit by $0.15 to account for the dye costs. Additionally, this will require additional batch setup costs in order to change over the color in the dyeing machines. Production is done in batches of 1,000 units, and it is estimated that for the special order total batch costs will be $550/batch. Second, a stencil will need to be created to airbrush the companys logo onto each rollerblade. The cost to create the stencil is estimated to be $1,500. Additionally, direct material costs will increase by $0.03/unit to account for the airbrush paint costs.
The product line manager is also concerned that this additional work will mean that there is no longer enough capacity to produce their regular rollerblades as well as this customer order. Specifically, it is expected that if this order is taken, Barnes will need to forgo 2,500 units of its regular sales.
Determine the minimum price per unit that Barnes should now be willing to accept for this order.
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