Question
Solomon Company manufactures a personal computer designed for use in schools and markets it under its own label. Solomon has the capacity to produce 31,000
Solomon Company manufactures a personal computer designed for use in schools and markets it under its own label. Solomon has the capacity to produce 31,000 units a year but is currently producing and selling only 14,000 units a year. The computers normal selling price is $1,610 per unit with no volume discounts. The unit-level costs of the computers production are $480 for direct materials, $230 for direct labor, and $190 for indirect unit-level manufacturing costs. The total product- and facility-level costs incurred by Solomon during the year are expected to be $2,170,000 and $817,000, respectively. Assume that Solomon receives a special order to produce and sell 3,020 computers at $1,210 each.
a: What is the contribution to profit?
b. Should solomon accept or reject the offer?
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