Madison Ine, received an oeder for a piece of special machinery fiom Atlas Coempany, Just as Madison completed the machine, Aslas Company declared bankruptey, defaalted on the order and Borfeited the 10 percent deposit paid on the selling price of s72,500 Madiscn's manufacturingmager identified the costs already iscurred in the production ofthe pecial machinery for Adlas Company as follows $16,600 21400 Direct material Direct laber Manufacturing overhead applied Variable Fixed Pixed selling and administrative costs Tosal 10,700 $59455 Another company, Outhack Coporation, will buy the special machinery if it is reworked to Outbuck'sspecifications Madisc olfered o well the rewocked machineryoOchack as pecial onder for 96840, Outback agreed to pay the price when it takes delivery in two mechs The aditional identifiable oosts to rewoek the machinery o Outback's specifications are as follows: iect material6,200 Direct labor Toal 10 400 A secoed alternative available to Madison's manapement is to convert the special machinery to the standard medel, which sells for Sc2Soo The additional identifiable costs .r this conversion are as follows Direct material $2,80 Direct laber 1 Teal $6,150 A thind altermative for Madicn is to sell the macine as is Bor a price of 852,000 However, the posential bayer of the unmodified machine does not want it for 60 days. This bayer has offered $7,000 down payme, with the remainder due upon delivery, The following aditional information is available reganding Malscn's operations The sales commission rate on sales of standard models is 2 perent, while the rate on special cndens is 3 percent. Normal credit tenms for sales of standard models are 2/10, net/VO. This means tat a casomer receives a 2 perces discount if payment is made within 10 days, and payment is dhe no later than 30 days afler billing Most cavsomers sake the 2 percent discount, Credit terms for peci al onler are negotiated with the custoemer * The allocation nes for manuficturing overhead and fised selling and administrwive costs are as follows Manufacturing costs: Variable Fixed 50% of direct-labor cows 25% of direct-labor cost IO%ofthe total ofdirect-tnuterial, direct-labor, and manufacturing-overlcad eosts Fixed selling and administrative Normal te required foe rework is one month Required: I. Detennine the dollar contribusion the first alternative will add to Madiscn' befire-tax profi poins) 2 Detennine the dollar contribuion the scoond alsernazive will add to Madisan betioeea profit (6 points) Detennine the dollar contriburion the third alvernacive will add so Madison' befioe-ax prott 6pois If Ourback makes Madiscn a coeveroffer, what is de lowest price Madison should accepy for the rewoeked machinery fiom Outhack? Detenmine the sinimon acceptable price from Outback (7 pois
