Question

10 Alton Inc. is working at full production capacity producing 28,000 units of a unique product. Manufacturing costs per unit for the product are as follows: Direct materials 9 10 Direct labor Manufacturing overhead Total manufacturing cost per unit points 10 $27 The per-unit manufacturing overhead cost is based on a $4 variable cost per unit and $168,0000 fixed costs. The nonmanufacturing costs, all variable, are $10 per unit, and the sales price is $42 per unit. еВook Sports Headquarters Company (SHC) has asked Alton to produce 6,600 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 $5 (not $10). Alton would sell the modified product to SHC for $32 per unit. Print Required 1-a. Calculate the contribution margin for 6,600 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 23,200 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? References Complete this question by entering your answers in the tabs below. Req 1A Req 1B Req 2 Calculate the contribution margin for 6,600 units for both the current and special order Contribution Margin Current Special order Req 1A Req 1B

Answer 1

					current		special
							order
Selling price per unit					42		32
less:Variable cost per unit
direct materials					9		9
direct labor					8		8
Variable factory overhead					4		4
variable non manufacturing overhead					10		5
total variable cost					31		26
contribution margin per unit					11		6
	thus contribution margin =			contribution margin per unit * 6600 units
				Contribution
				margin
	Current			72600
	Special order			39600
	should Alton produce the special order
	No
2)	minimum price per unit = total variable cost + per unit cost of lost sales
		full capacity			28000
		current working at			23,200
		Excess			4,800
	thus for order of 6600 units contribution will be lost on 6600 -4800 units =							1800
		oer unit cost of lost sales =			(1800*11)/6600
					3
		Minimum price =			34	answer