Question
CBA Inc., a manufacturer, has received a special request for 1000 units of its product, widgets, at a price of $ 52.50 per unit. The
CBA Inc., a manufacturer, has received a special request for 1000 units of its product, widgets, at a price of $ 52.50 per unit. The normal selling price for widgets is $ 60 per unit. CBA Inc.s annual capacity of 25,000 units and its current sales are 25,000 units per year. To analyze this special order, Jim Blum, the sales manager, gathered the following budgeted information:
Direct material cost per unit $ 2.10
Direct labor per unit 1.75
Variable overhead per unit 0.96
Fixed manufacturing overhead per unit 1.10
Variable selling and administrative per unit 10.96
The variable selling and administrative costs per unit represent commissions and would not be incurred on this special order.
Since the company has already been operating in full capacity, it needs to divert some of its existing capacity to produce 1000 units to fulfill the special order.
What is the contribution margin from this special order? Should CBA Inc. accept this special order?
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