Problem 10-38 (Algorithmic) Relevant costs; special order pricing

Kantrovitz Company is a manufacturer of industrial components. One of its products, AP110, is used as a subcomponent in appliance manufacturing. This product has the following information per unit:

Selling price	$	167
Costs:
Direct material	$	30
Direct labor	20
Variable manufacturing overhead	12
Fixed manufacturing overhead	29
Shipping and handling	3
Fixed selling and administrative	14
Total per-unit cost	$	108

a. Kantrovitz has received a special, one-time order for 1,300 AP110 parts. Assuming Kantrovitz has excess capacity, what is the minimum price that is acceptable for beginning negotiations on this order? $______________

b. Kantrovitz has 4,650 units of AP110 in inventory that have some defects. The units cannot be sold through regular channels without a significant price reduction. What per-unit cost figure is relevant for setting a minimum selling price on these units? $______________

c. During the next year, sales of AP110 are expected to be 10,700 units. All costs will remain the same except that fixed manufacturing overhead will increase by 30 percent and direct material will increase by 10 percent. The selling price per unit for next year will be $180. Based on these data, calculate the total contribution margin generated by part AP110. $______________

d. Referring to (a), Kantrovitz has received a special, one-time order for 1,300 AP110 parts. Assume that Kantrovitz is operating at full capacity, and that the contribution of the output would be displaced by the one-time special order. Using the original data, compute the minimum acceptable selling price for this order. $______________

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a. Focus on covering all costs that would be incurred if the order was accepted. Disregard costs that remain the same whether or not the order was accepted.

b. Only consider costs that would be incurred by selling the items that are already produced. Remember sunk costs would be disregarded.

c. Compare the selling price that is offered to the relevant costs of making the units. Keep in mind to include costs that change based on making these units. If costs change but are not as a direct result of making the units, then these costs would not be included in the decision making process.

d. Remember that full operating capacity means that fixed costs would change and increase under new production of units. So be sure to include in your analysis all variable per unit costs and a portion of the fixed costs that would be considered an opportunity cost per unit produced

Problem 10-38 (Algorithmic) Relevant costs; special order pricing Kantrovitz Company is a manufacturer of industrial components. One of its products, AP110, is used as a subcomponent in appliance manufacturing. This product has the following information per unit: Selling price Costs: Direct material Direct labor Variable manufacturing overhead Fixed manufacturing overhead Shipping and handling Fixed selling and administrative $ 16 7 $ 30 20 12 29 3 14 10 8 a. Kantrovitz has received a special, one-time order for 1,300 AP110 parts. Assuming Kantrovitz has excess capacity, what is the minimum price that is acceptable for beginning negotiations on this order? $______________ b. Kantrovitz has 4,650 units of AP110 in inventory that have some defects. The units cannot be sold through regular channels without a significant price reduction. What per-unit cost figure is relevant for setting a minimum selling price on these units? $______________ c. During the next year, sales of AP110 are expected to be 10,700 units. All costs will remain the same except that fixed manufacturing overhead will increase by 30 percent and direct material will increase by 10 percent. The selling price per unit for next year will be $180. Based on these data, calculate the total contribution margin generated by part AP110. $______________ d. Referring to (a), Kantrovitz has received a special, one-time order for 1,300 AP110 parts. Assume that Kantrovitz is operating at full capacity, and that the contribution of the output would be displaced by the one-time special order. Using the original data, compute the minimum acceptable selling price for this order. $______________ Total per-unit cost Hide Feedback $ Incorrect Check My Work Feedback a. Focus on covering all costs that would be incurred if the order was accepted. Disregard costs that remain the same whether or not the order was accepted. b. Only consider costs that would be incurred by selling the items that are already produced. Remember sunk costs would be disregarded. c. Compare the selling price that is offered to the relevant costs of making the units. Keep in mind to include costs that change based on making these units. If costs change but are not as a direct result of making the units, then these costs would not be included in the decision making process. d. Remember that full operating capacity means that fixed costs would change and increase under new production of units. So be sure to include in your analysis all variable per unit costs and a portion of the fixed costs that would be considered an opportunity cost per unit produced