Question

Rutkey Collectibles is a small toy company that manufactures and sells metal replicas of classic cars. Each car sells for $3.35 The cost of each unit follows:

Materials	$	1.20
Labor		0.40
Variable overhead		0.50
Fixed overhead ($14,700 per month, 19,600 units per month)		0.75
Total costs per unit	$	2.85

One of Rutkey's regular customers asked the company to fill a special order of 400 units at a selling price of $2.60 per unit. Rutkey's can fill the order using existing capacity without affecting total fixed costs for the month. However, Rutkey's manager was concerned about selling at a price below the $2.85 cost per unit and has asked for your advice.

Required:

a. Prepare a schedule to show the impact of providing the special order of 400 units on Rutkey's profits in addition to the regular production and sales of 19,600 units per month. (Select option "higher" or "lower", keeping Status Quo as the base. Select "None" if there is no effect.)

b. Based solely on the data given, what is the lowest price per unit at which the model cars could be sold for the special order without reducing Rutkey's profits? (Round your answer to 2 decimal places.)

Answer 1

Schedule
Units	19,600	20,000	400
	Status Quo	After special order	Difference
Sales	65,660	66,700	1,040	Higher
Less: Costs
Material	23,520	24,000	480	Higher
Labor	7,840	8,000	160	Higher
Variable overhead	9,800	10,000	200	Higher
Fixed Overhead	14,700	14,700	-	None
Total cost	55,860	56,700	840	Higher
Net Profit	9,800	10,000	200	Higher
Since increase in profits, order should be accepted
b.
Lowest Price = Cost per car i.e. 840/400 = $2.1