The Jehan Division of a company manufactures and sells Product A. The current selling price is $73 per unit. Per-unit costs are as follows: Direct materials $ 5.00 Direct labor 6.00 Manufacturing overhead: Variable 7.00 Fixed 8.00 Selling costs: Commissions 1.00 Shipping 1.50 Fixed 1.00 $ 29.50

The contribution margin per unit is: $____________

CONSIDER THE FOLLOWING QUESTIONS 1. A special one-time order to purchase 20,000 units was recently received at a price of $60 per unit. There is enough capacity to fill the order and filling this order will NOT disrupt current operations. If BLUE accepts this order, variable manufacturing costs will be reduced by $5 per unit and variable selling costs (both commission and shipping) will go down by 80%. Is there an opportunity cost to BLUE, yes or no and WHY? ________ (yes or no) Should BLUE accept this order? Yes or no and by how much?

_______________ $___________________ Accept/Reject Amount of benefit 2. In negotiating a price, in order to not hurt profits, the minimum acceptable selling price per unit would be:

$_________________

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3. Now assume that BLUE is operating AT CAPACITY and that accepting this order will displace other regularly scheduled work. Should BLUE accept or reject this order AND how much better or worse off would the company be?

_________________ $__________________ accept or reject better or worse by 4. The price per unit that BLUE could charge for this order without negatively affecting net income is:

$______________ per unit 5. A third party has offered to make Product A for the company and ship it directly to customers for a cost of $19 per unit. The facilities used to produce the product will remain unused for the short term. Should they outsource?

$ 6. Another division of the company would like to purchase units of Product A from Jehan at a price of $71.50 per unit. At this time, Jehan is operating at capacity and would have to displace regular units. a) Should Jehan make and sell these to the other division for $71.50? b) What is the minimum price that the Jehan division would be willing to charge?