Question

Clayton Manufacturing is approached by a European customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. Clayton Manufacturing has a policy of adding a 20% markup to full costs and currently has excess capacity. The following per unit data apply for sales to regular customers:

                              Variable costs:

                                      Direct materials                                              $50

                                      Direct labor                                                        30

                                      Manufacturing overhead                                10

                                      Marketing costs                                                 20

                              Fixed costs:

                                      Manufacturing overhead                              110

                                      Marketing costs                                                 30

                              Total costs                                                                250

                              Markup (20% of total costs)                                   50

                              Estimated selling price                                       $300

If the European customer wanted a long-term commitment, and not a one-time-only special order, for supplying this product, calculate the most likely price to be quoted assuming the markup remains the same?

Answer 1

- The most likely price to be quoted for a long time is $300 per unit.

- The total cost incurred per unit is $250 and it is the minimum acceptable price for the product and as per the company policy the markup of 20% remains same. Hence, the price is quoted along with the markup of $50 to the total cost of $250.

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