Question

Stuart Company manufactures a personal computer designed for use in schools and markets it under its own label. Stuart has the capacity to produce 39,000 units a year but is currently producing and selling only 13,000 units a year. The computer's normal selling price is $1,750 per unit with no volume discounts. The unit-level costs of the computer's production are $450 for direct materials, $270 for direct labor, and $110 for indirect unit-level manufacturing costs. The total product and facility-level costs incurred by Stuart during the year are expected to be $2,140,000 and $815,000, respectively. Assume that Stuart receives a special order to produce and sell 3,160 computers at $1,230 each. Required Calculate the contribution to profit from the special order. Should Stuart accept or reject the special order? Contribution to profit Should Stuart accept or reject the special order?

Answer 1

Variable cost per unit = Direct materials + Direct labor + Indirect costs

= 450+270+110

= $830

Selling price per unit = $1,230

Contribution margin per unit = Selling price per unit - Variable cost per unit

= 1,230-830

= $500

Total contribution to profit from special order = Contribution margin per unit x Number of units in special order

= 400 x 3,160

= $1,264,000

Contribution to profit	$1,264,000
Should Stuart accept or reject the special order?	Accept

Kindly comment if you need further assistance. Thanks‼!