Exercise 21.12 Pricing a Special Order (LO21-1, LO21-2, LO21-3) Mazeppa Corporation sells relays at a selling price of $28 per unit. The company's cost per unit, based on full capacity of 160,000 units, is as follows: $6 Direct materials Direct labor Overhead (2/3 of which is variable) Mazeppa has been approached by a distributor in Montana offering to buy a special order consisting of 30,000 relays. Mazeppa has the capacity to fill the order. However, it will incur an additional shipping cost of $2 for each relay it sells to the distributor 0-1. Assume that Mazeppa is currently operating at a level of 100.000 units show the calculation for the unit price to charge the distributor which will generate an increase in operating income of $2 per unit? 3-2. What is your interpretation of the changes to the contribution margin per unit and the operating income on account of the unit price charged to the distributor? b-1. Assume that Mazeppa is currently operating at full capacity Show the calculation for the unit price to charge the distributor which will generate an increase in operating income of $60.000 more than it would be without accepting the special order? b-2. What is your interpretation of the changes to the contribution margin per unit and the operating income on account of the unit price charged to the distributor? Reg A1 Req A2 Req B1 Reg B2 What is your interpretation of the changes to the contribution margin per unit and the operating income on account of the unit price charged to the distributor? (Do not round intermediate calculations.) At a current operating level of 100,000 units, the company will not have to turn away any of its regular customers in order to fill the special order If it wishes to increase operating income by unit included in the special order it only needs to generate a contribution margin per unit of Thus, the selling price per unit included in the special order is per Mazeppa Corporation sells relays at a selling price of $28 per unit. The company's cost per unit, based on full capacity of 160,000 units, is as follows: Direct materials Direct labor Overhead (2/3 of which is variable) 9 Mazeppa has been approached by a distributor in Montana offering to buy a special order consisting of 30,000 relays. Mazeppa has the capacity to fill the order. However, it will incur an additional shipping cost of $2 for each relay it sells to the distributor 2-1. Assume that Mazeppa is currently operating at a level of 100,000 units. Show the calculation for the unit price to charge the distributor which will generate an increase in operating income of $2 per unit? 3-2. What is your interpretation of the changes to the contribution margin per unit and the operating income on account of the unit price charged to the distributor? b-1. Assume that Mazeppa is currently operating at full capacity. Show the calculation for the unit price to charge the distributor which will generate an increase in operating income of $60,000 more than it would be without accepting the special order b-2. What is your interpretation of the changes to the contribution margin per unit and the operating income on account of the unit price charged to the distributor? Reg A1 Req A2 Req 81 Reg B2 Assume that Mazeppa is currently operating at full capacity. Show the calculation for the unit price to charge the distributor which will generate an increase in operating income of $60,000 more than it would be without accepting the special order? (Do not round intermediate calculations.) Special Sale 32 6 4 Selling price Less: Direct materials Direct labor Variable overhead Additional shipping costs Contribution margin per unit 6 2 18 14
