Question

Perez Company manufactures a personal computer designed for use in schools and markets it under its own label. Perez has the capacity to produce 25,000 units a year but is currently producing and selling only 16,000 units a year. The computer's normal selling price is $1,770 per unit with no volume discounts. The unit-level costs of the computer's production are $550 for direct materials, $170 for direct labor, and $110 for indirect unit-level manufacturing costs. The total product- and facility-level costs incurred by Perez during the year are expected to be $2,140,000 and $802,000, respectively. Assume that Perez receives a special order to produce and sell 3,000 computers at $1,220 each. Required Calculate the contribution to profit from the special order. Should Perez accept or reject the special order? Contribution to profit Should Perez accept or reject the special order?

Answer 1

Amount $ 1,220 Contribution to profit from the special order is :- Particulars Revenue per unit Unit-level costs:- Direct materials Direct labor Indirect unit-level manufacturing costs Total Unit-level cost per unit Incremental net operating income or (loss) per unit Contribution to Profit from the Special Order 3,000 units 550 170 110 830 390 1,170,000 Perez should accept the order because it will increase profits.