Question

Gibson Concrete Company pours concrete slabs for single-family dwellings. Lancing Construction Company, which operates outside Gibson’s normal sales territory, asks Gibson to pour 46 slabs for Lancing’s new development of homes. Gibson has the capacity to build 370 slabs and is presently working on 140 of them. Lancing is willing to pay only $2,670 per slab. Gibson estimates the cost of a typical job to include unit-level materials, $910; unit-level labor, $450; and an allocated portion of facility-level overhead, $1,400.

Required
Calculate the contribution to profit from the special order. Should Gibson accept or reject the special order to pour 46 slabs for $2,670 each?

Answer 1

Contribution to profit = Special order revenue - Relevant costs = (46*2670) - (46*910) - (46*450)	60,260
Accept or reject?	Accept