Question

please make sure the answer is right

Star Tech makes and sells portable adios Each oio regularty ses or $210. Te fo capacity of 10,000 radios produced cach perio Manufacturing overhead (60% variable ni 40% unavoidable ried. A special order has been received by Star Tech. for a sale of 2.000 radios so an customer. The only selling costs that would be incurred on this ceder radio fo shipping. Star Tech is now selling 6,000 radios through regular channa er i 1. The minimum selling price per radio in negotiating a price for this 2. Assume the buyer willing to buy in the the order, the company's sverall net operating income will decrease or increase (circle one) by each radio in the special order for 5195. f Star Tech accep

Answer 1

Ans a)
Incremental cost to make and sell the units as a special order are:
Direct Material + Direct Labor + Manufacturing O/H (only variable) + Cost of shipping

= 80 + 60 + .6*40 + 6
= 140 + 24 + 6 = 170
Note: Fixed cost will be anyway be incurred i.e even without this new order of 2000 units. Thus, only incremental costs will be used for assessing the minimum costs to be charged.

Ans b ) Price quoted by the buyer =$195
Profit margin per unit =$25

Operating profit will increase by = 25 *2000 = $50,000