Special order pricing Shorewood Shoes Company makes and sells a

variety of leather shoes for children. For its current mix of different models

and sizes, the average selling price and costs per pair of shoes are as

follows:

ITEM AMOUNT

Price $20

Costs:

Direct materials $6

Direct labor 4

Variable manufacturing overhead 2

Variable selling costs 1

Fixed overhead 3

Total costs $16

Shoes are manufactured in batch sizes of 100 pairs. Each batch requires

5 machine hours to manufacture. The plant has a total capacity of 4,000 machine

hours per month, but current monthly production consumes only about

80% of the capacity.

A discount store has approached Shorewood to buy 10,000 pairs of shoes

next month. It has requested that the shoes bear its own private label. Embossing

the private label will cost Shorewood an additional $0.50 per pair. However, no

variable selling costs will be incurred for fulfilling this special order.

Required

Determine the minimum (floor) price that Shorewood Shoes should charge for this order. What

other considerations are relevant in this decision?

HERE IS HOW I WORKED THE PROBLEM. IS THIS CORRECT? SHOULD THERE BE ANY OTHER CONSIDERATIONS?

Direct materials $6

Direct labor 4

Variable manufacturing overhead 2

Variable selling costs 1

Additional Cost . 50

Total costs $12.50