Rodder, Inc., manufactures a component in a router assembly. The selling price and unit cost data...
Rodder, Inc., manufactures a component in a router assembly. The selling price and unit cost data for the component are as follows:
|
Selling price |
$15 |
|
Direct materials cost |
3 |
|
Direct labor cost |
3 |
|
Variable overhead cost |
3 |
|
Fixed manufacturing overhead cost |
2 |
|
Fixed selling and administration cost |
1 |
The company received a special one-time order for 1,000 components. Rodder has an alternative use for production capacity for the 1,000 components that would produce a contribution margin of $5,000. What amount is the lowest unit price Rodder should accept for the component?
Homework Answers
Contribution margin per unit for 1000 units =$5,000/1,000
=$5
Variable cost = Direct materials+ Direct labor+ Variable overhead
=$3+$3+$3
=$9
So, the lowest unit price rodder should accept for the component
= Variable cost+ Contribution margin per unit
=$9 +$5
=$14
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