Question

Dot has received a special order for 2.700 units of its product at a special price. The product normally sells for $260 and has the following manufacturing costs: Per unit $ 64 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Unit cost Assume that Dot has sufficient capacity to fill the order without harming normal production and sales. What minimum price should Dot charge to achieve a $48,600 incremental profit?"

Answer 1

Answer:

The cost to make the product would be: Amount in $ Direct material $ 64.00 Direct labor $ 34.00 Variable Manufacturing overhead $ 44.00 Variable cost per unit $ 142.00 Note: The fixed costs are not relevant for this special order because they will be incurred regardless of whether the special order is accepted or rejected. Profit per unit that will be required to earn $48,600 incremental profit would be: Profit per unit = Incremental Profit/Special Order Number of Units Profit per unit = $48,600/2,700 Profit per unit = $18.00 Selling price per unit = Variable Cost per unit + Profit per unit Selling price per unit = $142 + $18 Selling price per unit = $160 Hence, the first option is correct.