Exercise 4-29 (Static) Pricing Decisions and Special Orders (LO 4-1, 2)

Skip to question

Dwight Furniture makes desks specially designed for small spaces, such as studio apartments and extended-stay hotels. Each desk sells for $110 (without chair). The cost of each desk follows:

Materials	$ 36
Labor	41
Variable overhead	6
Fixed overhead ($208,000 per month, 13,000 units per month)	16
Total costs per unit	$ 99

The local university is building a new dorm and asked Dwight for a special price of $90 for an order of 900 desks. Dwights can fill the order using existing capacity without affecting total fixed costs for the month. However, because the sale would be to a state agency, Dwight would have to file specified compliance documents with the state purchasing office. Dwight's manager estimates that the time and expenses incurred by this filing will amount to $7,200 and is independent of the number of desks ordered. Dwights manager is unsure whether to accept this order and wants your advice.

Exercise 4-29 (Static) Pricing Decisions and Special Orders (LO 4-1, 2)

Required:

a. Prepare a schedule to show the impact of providing the special order of 900 desks on Dwights profits in addition to the regular production and sales of 13,000 desks per month.

b. Based solely on the data given, what is the lowest price per unit at which the desks could be sold to the university without reducing Dwights profits?

Prepare a schedule to show the impact of providing the special order of 900 desks on Dwight's profits in addition to the regular production and sales of 13,000 desks per month. (Enter your answers in thousands rounded to 1 decimal place. (i.e., 5,400,400 should be entered as 5,400.4). Select option "higher" or "lower", keeping Status Quo as the base. Select "none" if there is no effect.) Show less Red text indicates no response was expected in a cell or a formula-based calculation is incorrect; no points deducted. Based solely on the data given, what is the lowest price per unit at which the desks could be sold to the university without educing Dwight's profits