Question

Rutkey Collectibles is a small toy company that manufactures and sells metal replicas of classic cars. Each car sells for $3.40 The cost of each unit follows:

Materials	$	0.90
Labor		0.70
Variable overhead		0.30
Fixed overhead ($22,200 per month, 22,200 units per month)		1.00
Total costs per unit	$	2.90

One of Rutkey's regular customers asked the company to fill a special order of 800 units at a selling price of $2.40 per unit. Rutkey's can fill the order using existing capacity without affecting total fixed costs for the month. However, Rutkey's manager was concerned about selling at a price below the $2.90 cost per unit and has asked for your advice.

Required:

a. Prepare a schedule to show the impact of providing the special order of 800 units on Rutkey's profits in addition to the regular production and sales of 22,200 units per month.

b. Based solely on the data given, what is the lowest price per unit at which the model cars could be sold for the special order without reducing Rutkey's profits?

c. If Rutkey Collectibles company was operating at capacity, what would happen to operating profit if the special order was accepted?

Answer 1

A.	Particulars	Cost per Unit	Total Unit	Total Cost		Particulars	Cost per Unit	Total Unit	Total Cost
	Materials	$               0.90	22000	$ 19,800.00		Materials	$               0.90	800	$     720.00
	Labor	$               0.70	22000	$ 15,400.00		Labor	$               0.70	800	$     560.00
	Variable Overhead	$               0.30	22000	$   6,600.00		Variable Overhead	$               0.30	800	$     240.00
	Fixed Overhead	$               1.00	22000	$ 22,000.00		Fixed Overhead	$               1.00	800	$     800.00
	Total Cost of goods sold			$ 63,800.00		Total Cost of goods sold			$ 2,320.00
	Selling Price	$               3.40	22000	$ 74,800.00		Selling Price	$               2.40	800	$ 1,920.00
	Profit			$ 11,000.00		Loss			$ -400.00
	Profit for 22800 units production		$ 10,600.00
B.	Lowest selling price is $ 2.90
C.	Particulars	Cost per Unit	Total Unit	Total Cost		Particulars	Cost per Unit	Total Unit	Total Cost
	Materials	$               0.90	22000	$ 19,800.00		Materials	$               0.90	800	$     720.00
	Labor	$               0.70	22000	$ 15,400.00		Labor	$               0.70	800	$     560.00
	Variable Overhead	$               0.30	22000	$   6,600.00		Variable Overhead	$               0.30	800	$     240.00
	Total			$ 41,800.00		Total			$ 1,520.00
	Selling Price	$               3.40	22000	$ 74,800.00		Selling Price	$               2.40	800	$ 1,920.00
	Operating Profit			$ 33,000.00		Operating Profit			$     400.00
	Total Operating Profit	$    33,400.00