Question
Corporation has received a request for a special order of 6,000 units of product ART77 for $32.20 each. The normal selling price of this product
Corporation has received a request for a special order of 6,000 units of product ART77 for $32.20 each. The normal selling price of this product is $33.45 each, and the units would need to be modified slightly for the customer. The normal unit product cost of product ART77 is computed as follows:
Direct materials | $15.00 |
Direct labor | 3.80 |
Variable manufacturing overhead | 1.40 |
Fixed manufacturing overhead | 2.10 |
Unit product cost | $22.30 |
The special order would have no effect on the company's total fixed manufacturing overhead costs. The customer would like some modifications made to product ART77 that would increase the variable costs by $4.90 per unit and that would require a one-time investment of $15,000 in special molds that would have no salvage value. This special order would have no effect on the company's other sales. The company has ample spare capacity for producing the special order.
A) Based on this data, the income (loss) of accepting this special order would be:
B) What is the lowest selling price per unit Corporation should consider for this special order (i.e. the price below which incremental costs would exceed revenues associated with this order)?
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