Question

Chapter 11 Assignment i Saved Help Save & Exit Submit Check my work Alton Inc. is working at full production capacity producing 21,000 units of a unique product. Manufacturing costs per unit for the product are as follows: 0.31 points Direct materials Direct labor Manufacturing overhead Total manufacturing cost per unit (8 02:44:55 Skipped The per-unit manufacturing overhead cost is based on a $3 variable cost per unit and $84,000 fixed costs. The nonmanufacturing costs, all variable, are $6 per unit, and the sales price is $33 per unit. eBook References Sports Headquarters Company (SHC) has asked Alton to produce 5,200 units of a modification of the new product. This modification would require the same manufacturing processes. However, because of the nature of the proposed sale, the estimated nonmanufacturing costs per unit are only $3 (not $6). Alton would sell the modified product to SHC for $23 per unit. Required 1-a. Calculate the contribution margin for 5,200 units for both the current and special order. 1-b. Should Alton produce the special order for SHC? 2. Suppose that Alton Inc. had been working at less than full capacity to produce 16,900 units of the product when SHC made the offer. What is the minimum price per unit that Alton should accept for the modified product under these conditions?

Answer 1

Ans:

1. Contribution margin for 5200 units for both current order and special order:

Particulars	Current	Special order($)
Revenue per unit	$33	$23
Less: variable cost per unit
Direct materials	($6)	($6)
Direct labor	($5)	($5)
Variable factory overhead	($3)	($3)
Variable non-manufacturing units	($6)	($3)
Contribution margin per unit	$13	$6
Number of units	5,200	5,200
Contribution margin in total	$67,600	$31,200

B). I think Alton should not produce the special order For SHC as there is net decrease of 36,400 in accepting the special order

C). Minimum price per unit that Alton should accept for modified product under these conditions:

Particulars	Amount($)	Amount($)
out-of -pocket costs
Direct materials	6
Direct labors	5
Variable factory overhead	3
Variable non-manufacturing costs	3
		17
Opportunity costs:
No of units of lost sale	1100
CM per unit-Regular sale(33-20)	13
Total opportunity cost	16,900
Number of units of special order	5200
		3.25
Minimum acceptable order		20.25

Therefore minimum price per unit will be $20.25