Question
Forrest Corporation manufactures parts that are used in the production of washers and dryers. The following costs are associated with part no. 65: Direct materials
Forrest Corporation manufactures parts that are used in the production of washers and dryers. The following costs are associated with part no. 65:
Direct materials | $30 |
Direct labor | $15 |
Variable manufacturing overhead | $12 |
Fixed manufacturing overhead | $19 |
Variable selling costs | $22 |
The company received a special-order inquiry from an appliance manufacturer in Brazil for 12,000 units of part no. 65. $13 of fixed manufacturing will be avoided on the order, and the variable selling costs per unit will amount to only $7. Usually the company sells the part no. 65 at price of $125.
Required.
(a) Assume Forrest has excess capacity, what is the minimum price that Forrest should charge the Brazil manufacturer?
(b) Assume Forrest has NO excess capacity, what is the price that Forrest should charge the Brazil manufacturer?
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