Question

Rutkey Collectibles is a small toy company that manufactures and sells metal replicas of classic cars. Each car sells for $3.55 The cost of each unit follows: Materials Labor Variable overhead Fixed overhead ($27,625 per month, 22,100 units per month) Total costs per unit $1.10 2.40 8.30 1.25 $3.05 ences One of Rutkey's regular customers asked the company to fill a special order of 600 units at a selling price of $2.30 per unit. Rutkey's can fill the order using existing capacity without affecting total fixed costs for the month. However, Rutkay's manager was concerned about selling at a price below the $3.05 cost per unit and has asked for your advice. Required: a. Prepare a schedule to show the impact of providing the special order of 600 units on Rutkey's profits in addition to the regular production and sales of 22,100 units per month 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? c. If Rutkey Collectibles company was operating at capacity, what would happen to operating profit if the special order was accepted?

Answer 1

Schedule
Units	22100		600
	Without Special Order	With Special Order	Difference
Sales revenue	78,455	79,835	1,380
Material	24,310	24,970	660
Labor	8,840	9,080	240
Variable Overhead	6,630	6,810	180
Fixed overhead	27,625	27,625	-
Operating Income	11,050	11,350	300
Hence, order should be accepted since incremental profit of $300
b.Lowest price = Cost = $1080/600 = $1.8 per unit
c.The Operating profit will reduce by (3.55 - 2.30)*600 = $750