PROBLEM #3 %u2013 SPECIAL ORDER

Wagner Company sells Product A for $21 per unit. If Wagner operates at full production capacity of 200,000 units, its manufacturing cost per unit are as follows:

Direct materials $4.00

Direct labor 5.00

Overhead, 2/3 of which is fixed 6.00

Total $15.00

A special order for 20,000 units was received from a foreign distributor. The foreign distributor offered $14.50 per unit. The only selling costs on this order would be $3.00 per unit for shipping. Wagner has sufficient capacity to manufacture the additional units. Fixed overhead costs would not be affected if the special order is accepted.

Required: (1) Compute the gain or loss if the customer%u2019s offer is accepted. (2) Calculate the price per unit at which the special order would generate a $20,000 profit before taxes.