Question

Mickey Corporation has a plant capacity of 100,000 units per month. Unit costs at capacity are:

Direct materials	$4.00
Direct labor	6.00
Variable overhead	3.00
Fixed overhead	1.00
Marketing (fixed)	7.00
Distribution (variable)	3.60
	$24.60

Current monthly sales are 95,000 units at $30.00 each. Suzie, Inc., has contacted Mickey Corporation about purchasing 2,000 units at $24.00 each. Current sales would not be affected by the one-time-only special order. What is the change in operating profits if the one-time-only special order is accepted?

$17,200 increase

$14,800 increase

$1,200 deccease

$12,000 decrease

2.

What is the minimum price Mickey Corporation should bid on this special order?

Group of answer choices

$16.6

$24.6

$13

$17.6

Answer 1

Solution :

(1) The Answer is (b) $ 14,800 Increase.

(2) The Answer is (a) $ 16.6.

Working :

(1)

(a) Special Order Units	2,000
(b) Special Order Selling Price	$ 24
Relevant Variable Cost:
(c) Direct Material per Units	$ 4
(d) Direct Labor per Unit	$ 6
(e) Variable OH per Unit	$ 3
(f) Distribution Expenses per Unit	$ 3.6
(g) Additional Contribution per Unit on Special Order ( b - c -d -e -f)	$ 7.4
(h) Increase in Income (a * g)	$ 14,800

(2) Since the Mickey Corporation has excess capacity so minimum price that can be bid = Variable Cost per Unit

Variable Cost per Units = Direct Material + Direct Labor + Variabe OH + Variable Distribution Expenses

= $ 4 +$ 6 + $ 3 +$ 3.60

= $ 16.6

Minimum price that could be bid = $ 16.6 per Unit

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