Speical Order Soni, LTD produces wall mounts for flat panel television sets. The forecasted income statement...
Speical Order
Soni, LTD produces wall mounts for flat panel television sets. The forecasted income statement for 2017 is as follows:
| SONI, LTD Budgeted Income Statement For the Year 2017 |
|
|---|---|
| Sales ($ 44 per unit) | $ 4,400,000 |
| Cost of good sold ($ 36 per unit) | (3,600,000) |
| Gross profit | 800,000 |
| Selling expenses ($ 3 per unit) | (300,000) |
| Net income | $ 500,000 |
Additional Information
(1) Of the production costs and selling expenses, $800,000 and
$100,000, respectively, are fixed.
(2) Soni, LTD received a special order from a hospital supply
company offering to buy 12,500 wall mounts for $30. If it accepts
the order, there will be no additional selling expenses, and there
is currently sufficient excess capacity to fill the order. The
company's sales manager argues for rejecting the order because "we
are not in the business of paying $36 to make a product to sell for
$30."
Calculate the current production volume:
Answer
units
The variable production cost per unit is: $Answer
(per unit)
Homework Answers
Total production cost = $3,600,000
Production cost per unit = $36
Number of units produced = $3,600,000/$36 = 100,000 units
Fixed production costs = $800,000
Total variable production costs = Total production costs - Total fixed production costs = $3,600,000 - $800,000 = $2,800,000
Variable production costs per unit = $2,800,000/100,000 units = $28 per unit
Selling price pe unit for special order = $30
Net income per unit of special order = $30 - $28 = $2 per unit
Net income for special order = $2 * 12,500 units = $25,000
Hence, special order should be accepted because it provides an incremental net income of $25,000.
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