Question

Special Order
Total cost data follow for Glendale Manufacturing Company, which has a normal capacity per period of 8,000 units of product that sell for $60 each. For the foreseeable future, regular sales volume should continue to equal normal capacity.

Direct material				$102,400
Direct labor				64,000
Variable manufacturing overhead				48,400
Fixed manufacturing overhead (Note 1)				38,400
Selling expense (Note 2)				35,200
Administrative expense (fixed)				15,000
				$303,400

Notes:
1. Beyond normal capacity, fixed overhead costs increase $1,800 for each 500 units or fraction thereof until a maximum capacity of 10,000 units is reached.
2. Selling expenses consist of a 6% sales commission and shipping costs of 80 cents per unit. Glendale pays only three-fourths of the regular sales commission on sales totaling 501 to 1,000 units and only two-thirds the regular commission on sales totaling 1,000 units or more.

Glendale's sales manager has received a special order for 1,200 units from a large discount chain at a price of $36 each, F.O.B. factory. The controller's office has furnished the following additional cost data related to the special order:

1. Changes in the product's design will reduce direct material costs $1.50 per unit.
2. Special processing will add 20% to the per-unit direct labor costs.
3. Variable overhead will continue at the same proportion of direct labor costs.
4. Other costs should not be affected.

a. Present an analysis supporting a decision to accept or reject the special order. (Round computations to the nearest cent.)

Differential Analysis
	Per Unit	Total
Differential revenue		Answer
Differential costs
Direct material	Answer
Direct labor	Answer
Variable manufacturing overhead	Answer
Selling:
Commission	Answer
Shipping (F.O.B. factory terms)	Answer
Total variable cost	Answer	Answer
Contribution margin from special order		Answer
Fixed cost increment:
Extra cost		Answer
Profit on special order		Answer

b. What is the lowest price Glendale could receive and still make a profit of $3,600 before income taxes on the special order?

Round answer to two decimal places, if applicable.

$Answer

Answer 1

Answer with working notes is given below

Working notes: Output Direct Material Direct Labour Variable overhead Variable OH % of DL 8,000 per unit changes Revised cost $102,400 $12.80 - $1.50 $11.30 $64,000 $8.00 $1.60 $9.60 $48,400 $6.05 $7.26 75.625% 75.625% a) Total $43,200 Differential Analysis | Per Unit Differential revenue $36.00 Differential costs Direct material $11.30 Direct labor $9.60 Variable manufacturing overhead $7.26 Selling: Commission - $36*6%*2/3 $1.44 Shipping (F.O.B. factory terms) $0.00 Total variable cost $29.60 Contribution margin from special order Fixed cost increment: Extra cost Profit on special order $35,520 $7,680 $5,400 ($1,800*3) $2,280 Profit needed Variable Cost Fixed Cost Total Target needed Cost per unit Commission at 4% on selling price So selling price will be $35.66/0.96 $3,600 $33,792 $28.16- Direct Material + labor +overhead $5,400 $42,792 $35.66 $37.15