Question

Special Order Total cost data follow for Glendale Manufacturing Company, which has a normal capacity per period of 8,000 units of product that sell for $60 each. For the foreseeable future, regular sales volume should continue to equal normal capacity. Direct material Direct labor Variable manufacturing owerhead Fixed manufacturing averhead (Note 1 Selling expensei Note 2) Administrative expense (fixed) $98,400 60,000 44,400 38,400 35,200 15,000 $291.400 Notes: 1. Beyond normal capacity, fixed overhead costs increase $1,800 for each 500 units or fraction thereof until a maximum capacity of 10,000 units is reached. 2. Selling expenses consist of a 6% sales commission and shipping costs of 80 cents per unit. Glendale pays only three-fourths of the regular sales commission on sales totaling 501 to 1,000 units and only two-thirds the regular commission on sales totaling 1,000 units or more. Glendales sales manager has received a special order for 1,200 units from a large discount chain at a price of $36 each, F.O.B. factory. The controller's office has furnished the following additional cost data related to the special order: 1. Changes in the product's design will reduce direct material costs $1.50 per unit. 2. Special processing will add 20% to the per-unit direct labor costs. 3. Variable overhead will continue at the same proportion of direct labor costs. 4. Other costs should not be affected. a. Present an analysis supporting a decision to accept or reject the special order. (Round computations to the nearest cent.) Differential Analysis Per Unit Total Differential revenue $ 13,200 Differential costs Direct material $ 10.8 Direct labor Variable manufacturing overhead 6.66 Selling Commission Shipping (F0B factory terms) 0 Total variable cost $ 27,9 33 180 Contribution margin from special order 9,720 Fixed cost increment: Extra cost 5400 Profit on special order $ 4.220 b. What is the lowest price Glendale could receive and still make a profit of $3,600 before income taxes on the special order?

Kindly please solve for problem B. Thank you.

Answer 1

$35.40. is the lowest price that could be received to still make a profit of $3600 before taxes.

working:

working backwards:

profit on special order	3600
add: fixed costs	5400
total contribution required	9,000
add: variable cost	33,480
total revenue required (33,480+9000)	42,480
lowest price ($42,480/1200 units)	$35.40